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Microsoft reported record revenue and profits in its last quarter, but as the company looks to cash in on generative AI, executives warned that the investments in tech infrastructure to support these new tools will be costly.
Revenue was up 8% year over year, to $56 billion, while profit increased 20% in the quarter, to $20 billion.
- The company’s Intelligent Cloud segment, comprising businesses including Azure, SQL Server, and Windows Server, reported $24 billion in revenue, up 15% from the prior year.
- Search and news advertising revenue was up 8%, slightly lower than expected, and revenue from LinkedIn grew 5%.
- The continued pressure on the ad market is expected to affect growth in those sectors in future quarters, with recruiting slowdowns anticipated to affect LinkedIn in particular, according to Amy Hood, Microsoft’s EVP and CFO.
Big spender: Despite the big figures, costs are also climbing. Capital expenditures were nearly $11 billion in the quarter, and those expenses are expected to increase sequentially each quarter as the company builds out its cloud infrastructure to support growing demand for AI tools, Hood told investors Tuesday after the closing bell.
The payoff of those investments will not be immediate. “Even with strong demand and a leadership position, growth from our AI services will be gradual,” Hood said.
AI on the prize: Microsoft’s push into AI comes amid surging interest and demand in the technology across the media sector. Google is pushing into AI and hoping to monetize it with ads, while Omnicom struck a pact with Microsoft to develop an AI-powered virtual assistant for agency employees.