Microsoft CEO speaks of global cloud factory as Azure stalls

On the day that CEO Satya Nadella discussed Microsoft's “planetary-scale cloud and artificial intelligence factory,” the Azure cloud—the underlying IT infrastructure—was down for more than eight hours.

According to the company's latest quarterly results, Microsoft Cloud Revenue topped $49 billion, up 26% from the same quarter last year. Overall, Microsoft's revenue was $78 billion, up 18%.

“We are seeing growing demand and adoption of our artificial intelligence platform and family of Copilots, which is driving our investments in both capital and talent,” Nadella said during the earnings conference call.

Nadella said Microsoft now has 900 million active users of artificial intelligence features across all of its products. The company reported an increase in capital expenditures to $35 billion, driven by growing demand for its cloud and artificial intelligence offerings.

CFO Amy Hood said: “This quarter, approximately half of our expenses were on non-performing assets, primarily GPUs. [graphics processor units] and processors [central processor units]to support the growing demand for the Azure platform, the development of our own applications and artificial intelligence solutions, the acceleration of research and development by our product teams, and the ongoing replacement of legacy server and network equipment.”

There are also long-term costs, which include US$11 billion in finance leases primarily for large data centers.

Addressing the company's need to buy more CPUs and GPUs, Hood acknowledged that Azure will be “capacity-constrained,” adding, “We will continue to balance Azure revenue growth with the growing needs for our own applications and artificial intelligence solutions, our own R&D efforts, and the replacement of end-of-life servers.” Therefore, we now expect capacity to be constrained until at least the end of our financial year.”

Hood acknowledged that as workloads switch from CPUs to GPUs, this means the company was struggling to keep up. “We're already missing many blocks. I thought we were going to catch up, but we're not. Demand is increasing. It's not increasing in just one place, it's increasing in many places,” Hood added.

Commenting on Microsoft's results, Forrester Principal Analyst Tracy Wu said: “Microsoft met expectations, but the level of investment in AI is concerning. Average enterprise AI spending is significantly lower than expected – in part due to limited production-ready use cases. This will change, but will call into question whether Microsoft has invested too much, too soon in AI.

“The company is currently benefiting from the AI ​​hype, and cloud computing revenues have significantly boosted AWS revenues in recent years, which is promising as Azure becomes a major source of revenue for Microsoft.”

Just hours before reporting earnings, around 3:45 pm in the UK, Microsoft's cloud experienced an outage that affected customers around the world, including a number of major retailers in the UK.

The company said the main cause of the outage was an “accident.” unintended tenant configuration change in Azure Front Door [AFD]This caused widespread service outages affecting Azure customers whose IT teams use AFD for global content delivery.

“This change resulted in an invalid or inconsistent configuration state that caused a significant number of AFD nodes to not boot properly, resulting in increased latencies, timeouts, and connection errors for downstream services,” Microsoft said.