Why Microsoft’s Earnings Miss Won’t Stall the A.I. Boom

Satya Nadella, Microsoft’s C.E.O., said heavy spending on artificial intelligence was justified given the potential payoff, even if it may take years to turn into profits.Credit…Erin Schaff/The New York Times

Big Tech’s big spending

The technology sector is facing another rough patch, after Microsoft reported mixed quarterly earnings and its shares tumbled. The company’s results are fueling more concern among investors about whether hefty spending on artificial intelligence will pay off, and how long that might take.

But analysts say that Microsoft is on better footing than its rivals, and that investor enthusiasm for all things A.I. will remain strong over the long term.

Microsoft missed earnings expectations for its cloud business by a hair. The company said on Tuesday that its Azure division grew 30 percent in the most recent quarter, just short of the 31 percent that the company had forecast.

Shares in the tech giant were down 3 percent in premarket trading on the results, echoing a similar market reaction to Alphabet last week, when Google’s parent company disclosed the scale of its ever-growing A.I. bills.

Other A.I.-related stocks are down, too. Shares in Nvidia, the dominant A.I. chipmaker, closed down 7 percent on Tuesday, wiping about $250 billion off its market value, while those in Arm, the SoftBank-controlled chip design company, fell 6 percent.

The costs of the A.I. boom are hanging over Big Tech. Microsoft has invested $13 billion in OpenAI, the company behind ChatGPT, and a number of other partnerships with A.I. start-ups to meet soaring demand. On Tuesday, the company revealed more mind-boggling numbers behind its effort to win the A.I. race:

• It spent almost $19 billion in capital expenditure last quarter, up almost 80 percent year-on-year and more than twice as much as it invested two years ago.

• Spending on new building and data center improvements rose to $35.4 billion for the fiscal year that just ended, up from $13.5 billion in the previous year.

Microsoft isn’t going to pull back. Satya Nadella, the company’s C.E.O., told analysts the investments were key to “capture the opportunity of A.I.” Amy Hood, its C.F.O., said that spending would rise this year, adding that the investments in data centers would be monetized “over 15 years and beyond.”