• by Laurie Sullivan  @lauriesullivan, October 31, 2024

Microsoft reported financial results Wednesday and told the world it had no intention of slowing the pace of spending to build data centers for its work in artificial intelligence.

The company reported during its earnings call that it spent $20 billion on capital expenditure -- up 79% compared with the previous year. The plan is to spend more in the fourth quarter of 2024.

Microsoft CEO Satya Nadella said in a call with investors that the company’s business that enables customers to adopt AI is on track to reach more than $10 billion in annual sales in the final quarter of calendar-year 2024, which would make it “the fastest business in our history to reach this milestone.”

Microsoft's first quarter of the fiscal year is the third quarter of the calendar year.

"We are seeing AI drive a fundamental change in the business applications market as customers shift from legacy apps to AI-first business processes," Nadella said.

Despite all the spending, Microsoft increased profit by 11% to $24.7 billion. Overall revenue rose 16% to $65.6 billion as its net income climbed 11% to $24.7.

Revenue for its Azure cloud business built on AI rose 33% in the quarter through September. For the current quarter, the company expects slightly less, with Azure growth estimated between 31% and 32%.

More Personal Computing -- which includes Windows -- posted a 17% increase in revenue with an increase to $13.2 billion, including an increase of 18% in Microsoft’s search and news advertising revenue, and a 61% increase in Xbox content and services revenue.

The company’s Intelligent Cloud business posted the biggest revenue gains, up 20% to $24.1 billion, driven by server products and cloud service revenue.

LinkedIn revenue rose nearly 10% to $4.3 billion, seeing growth across all its business.

Microsoft CFO Amy Hood attributed the slowdown in part to the need for the company to build up more cloud computing capacity to meet AI demand. 

For the first time, Microsoft also disclosed the full amount of its OpenAI investment. In its quarterly regulatory filing it reported making total funding commitments of $13 billion to the company, and didn’t include the additional $750 million 

Microsoft also reportedly made an equity investment in OpenAI’s latest funding round at the beginning of October. Based on that investment, in part, the company recorded $683 million in expenses in the quarter, some originating from losses in its OpenAI stake.

Losses create tension, but so does value. “Our partnership with OpenAI also continues to deliver results,” Nadella said during the earnings call. “We have an economic interest in a company that has grown significantly in value.”