Microsoft on Wednesday said it spent a record amount on artificial intelligence in the last quarter and showed slower cloud computing growth, which worried investors who expected significant returns from the spending and a mega-deal with OpenAI, UNN reports with reference to Reuters.
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Microsoft shares fell 6.5% in after-hours trading after the company released its financial results for the second fiscal quarter.
The tech giant's strategic partnership with OpenAI, which plans to spend at least $281 billion on Microsoft, was once seen by investors as its strongest competitive advantage in the AI race. But it has turned into a potential disadvantage for the Redmond, Washington-based company, as Google's Gemini makes inroads in winning over huge customers like Apple.
During a conference call with analysts, Microsoft executives tried to convince Wall Street to evaluate its AI success by looking not only at sales from cloud computing services, but also at the growth of its business selling its own AI-powered assistants. The company for the first time disclosed key metrics on the use of its Copilot assistant by businesses.
But despite Microsoft CEO Satya Nadella's insistence that AI remains in its "early stages" of development, the company has spent more than $200 billion on the technology since the beginning of fiscal year 2024, and investors' patience is wearing thin, the publication writes.
"One big obvious problem is that revenue grew 17% and cost of revenue grew 19%. So if that's a new long-term trend, that's one of my concerns," said Eric Clark, portfolio manager at LOGO ETF, which owns Microsoft shares.
The tech giant said revenue from its Azure cloud unit grew 39% in the October-December period, its second fiscal quarter. This slightly exceeded the consensus forecast of 38.8%, according to Visible Alpha.