[Financial Summary] Microsoft's “Azure” Business Revenue Growth Rate Slows Down, Capital Spending Surges

Capital expenditure surged 77.6% from the previous year, mostly AI-related expenses. Furthermore, it was stated that future capital expenditure will also be increased.

Also, sales of Xbox content and services increased 61%, and the acquisition of Activision contributed greatly.

The company announced FY25Q1 guidance at the financial results briefing. Sales for the first quarter were 638 to 64.8 billion dollars, and the market forecast was 65.07 billion dollars. Based on a constant exchange rate, “Azure” is expected to grow 28% to 29% compared to the same period last year, Intelligent Cloud is expected to grow 18% to 20% of 286 to 28.9 billion dollars, and More Personal Computing is expected to grow 9% to 12%.

Growth of the cloud service “Azure” is slowing
According to Microsoft's FY24Q4 financial results, until 6/30, sales of the company's “Azure” business increased 29%, and growth decelerated from a 31% increase in the previous fiscal year (30% increase based on constant exchange rate), falling below market expectations of 30.6%. Also, the growth rate guidance for the “Azure” business in FY25Q1 was 28% to 29%, which was lower than the market forecast of 29.7%.

Wall Street investors are increasingly concerned that huge investments in AI by tech giants “may not be profitable.”

Capital expenditure surged to 77.6%
Microsoft's capital expenditure for the fourth quarter (including finance leases) increased 77.6% from the same period last year to 19 billion dollars, and exceeded the 50 billion dollar annual capital expenditure for FY24.

Among them, CFO Amy Hood was at the financial results briefing, and almost all of them were AI-related expenses. Our management stated that about half of the expenses were used for infrastructure needs such as data center installations and leases, and most of the rest was spent on servers including CPUs and GPUs.

According to Vice President Brett Iversen, who is in charge of IR, the company will continue to increase spending to meet “high customer demand” in the future, and capital expenditure for fiscal 2025 is expected to exceed fiscal year 24.

Analyst comments
Stone Fox Capital pointed out that “although Microsoft's stock price has fallen 10% from an all-time high, stock prices are at a 'perfect level' for financial results announcements.” He also commented, “Forward PER up to fiscal year 25 is 32 times, which is slightly expensive, especially when considering extreme capital expenditure and anxiety about future AI growth.”