On July 30th local time, Microsoft released the fourth quarter and full-year financial report for fiscal year 2024 as of June 30th.

The financial report shows that Microsoft's Q4 total revenue is 64.727 billion dollars, a 15% YoY growth; EPS is 2.95 dollars, a 10% YoY growth; both exceeded Wall Street's estimates, but grew slightly slower than the previous quarter. In 2024 fiscal year, Microsoft's total revenue reached 245.122 billion dollars, a 16% YoY growth.

However, due to the slower-than-expected growth of Microsoft's Azure cloud business revenue and the continued surge in capital expenditures, investors are concerned about the problem of the long return period of AI, which caused the after-hours stock price to fall by more than 8%. Later, the company stated that Azure growth will accelerate in the second half of fiscal year 2025, and Microsoft's after-hours decline narrowed to within 3%. As of press time, Microsoft’s pre-market fell more than 2%.

Slow cloud business growth! Disappointing AI returns.

In terms of business, Microsoft's intelligent cloud business revenue was $28.5 billion, a year-on-year increase of 19%; the revenue of the productivity and business process department was $20.3 billion, a year-on-year increase of 11%; the revenue of the personal computing business was $15.9 billion, a year-on-year increase of 14%.

Among them, the most concerned about the market is Azure business, which is most related to AI and contributes the most incremental revenue. Azure and other cloud service revenues increased by 29%, a growth of 30% at fixed exchange rates, which is slightly slower than the 31% growth rate in the previous quarter; the proportion of AI contribution to growth rate increased from 7% in the previous quarter to 8%.

Although the growth rate of these two data is not low, it is still not remarkable under the high expectations of Wall Street, which caused concerns about the investment return of Microsoft AI. However, in the conference call, Microsoft executives gave investors a shot in the arm. Chief Financial Officer Amy Hood stated that although Azure's growth will continue to slow down in the current quarter ending in September, investments in data centers and servers will allow the company to fully leverage demand and accelerate Azure's growth in the second half of fiscal year 2025.

However, in the face of high expectations on Wall Street, Microsoft's massive investment in AI is still not remarkable, causing concerns about the investment return of Microsoft AI.

However, in the conference call, Microsoft executives gave investors a shot in the arm. Chief Financial Officer Amy Hood stated that although Azure's growth will continue to slow down in the current quarter ending in September, investments in data centers and servers will allow the company to fully leverage demand and accelerate Azure's growth in the second half of fiscal year 2025.

One of the businesses most closely related to AI is Microsoft's Office business. Previously, Microsoft has been promoting the use of its Office Copilot and other generative AI services by enterprise customers. Copilot can summarize documents, generate computer code, emails and other content. According to Brett Iversen, director of investor relations, more and more customers are using the company's advanced Office 365 products, including generative AI features.

The number of Copilot users is also showing strong momentum of growth. The financial report shows that the number of customers this quarter has increased by more than 60% month-on-month, and the daily activity has doubled. Currently, many of Microsoft's corporate customers are just beginning to use new AI assistants, including Capital Group, Disney, Dow Inc., etc. Only EY has deployed Copilot to its 150,000 employees. Industry insiders also expect that this service will eventually generate strong recurring revenue streams.

Capital expenditures soar, and the market loses patience with tech giants.

During this earnings season, investors were very sensitive to the massive investment in AI by technology giants, because they are worried that such a big splash of money will take a long time to turn a profit. Previously, Google’s capital expenditures surged, overshadowing strong financial data performance, and the day-after performance fell more than 5%.

While Microsoft’s AI returns were lower than expected, capital expenditures also surged 77.6% to US$19 billion, which was also a 35% increase from the previous quarter’s US$140, which undoubtedly touched on investors' pain points.

Almost all of these capital expenditures will be used for artificial intelligence. Microsoft executives said that about half of it is used for infrastructure needs, such as building and leasing data centers; the rest of cloud and AI-related expenditures are mainly used for servers, including CPUs and GPUs.

Like its counterparts, such as Amazon and Google, Microsoft has been building new data centers to meet the needs of cloud computing and power-hungry artificial intelligence services. But this also makes the market very concerned: AI burns money like this, but how long does the profit cycle take?

Regarding this, CFO Amy Hood pointed out that Microsoft's large expenditure on AI will achieve monetization in "15 years or even longer." Moreover, the company will continue to increase its expenditures, and capital expenditures in fiscal year 2025 may be higher than fiscal year 24.

Daniel Morgan, senior portfolio manager at Synovus Trust, said: "Wall Street doesn't have a lot of patience. They see you spending billions of dollars and they want to see huge increases in revenue. If these companies don't outperform expectations, and far better than expected, then they will be weeded out."

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