Microsoft's heavy spending on data centers to support artificial intelligence applications might be giving investors pause, but it's great news for AI chipmakers and server computer vendors. Microsoft stock fell Wednesday after its quarterly report, but Nvidia, Super Micro Computer and others rose.
Late Tuesday, Microsoft disclosed spending $19 billion on capital expenditures in the June quarter, which was higher than many analysts had expected. Microsoft and other hyperscale cloud computing service providers are spending massive sums to build the infrastructure to run AI applications.
For its full fiscal year ended June 30, Microsoft spent $55.7 billion on capex, up 75% from the prior year. And Microsoft expects to spend even more on capex in fiscal 2025 than it did in the just-finished fiscal 2024.
The big spending by Microsoft, Amazon, Alphabet's Google, Meta and the like is positive news for AI chipmakers Nvidia, AMD, Broadcom and others. It also is a tailwind for data center computer makers Super Micro and Dell Technologies.
For its AI data centers, Microsoft is using processors from AMD and Nvidia, as well as chips designed in-house.
Microsoft Stock Pulls Back After Report
On the stock market today, Microsoft stock dropped 1.1% to close at 418.35. After the close on Tuesday, Microsoft reported slightly better-than-expected results for its fiscal fourth quarter. But revenue growth slowed for its Azure cloud computing business. Also, Microsoft gave a sales outlook for the current quarter that missed estimates.
On a conference call with analysts, Microsoft executives fielded several questions about its capex spending.
Microsoft Chief Executive Satya Nadella compared the AI capex ramp to the ramp in spending required for the cloud computing shift. He said Microsoft's investments will be based on the demand signals it sees for AI.
Chief Financial Officer Amy Hood said Microsoft is capacity-constrained on AI in its Azure business and that has held back growth for the unit.
Microsoft Investors Practicing Patience
Morgan Stanley analyst Keith Weiss said investors are waiting for more signs that generative artificial intelligence is boosting sales at Microsoft.
"With the acceleration in capex spending not yet inflecting core GenAI revenue KPIs (key performance indicators), investors are again forced to practice patience awaiting a yield on these investments," Weiss said in a client note. He rates Microsoft stock as overweight with a price target of 506.
Barclays analyst Tim Long said Microsoft's cloud capex spending has positive implications for Arista Networks, Super Micro and other hardware suppliers.
On Wednesday, Arista Networks stock rose 11.3%. Super Micro climbed 5.3%. Dell stock advanced 4.7%.
Among AI chip stocks, Nvidia stock jumped 12.8% to close at 117.02. AMD stock increased 4.4%. Broadcom surged 12%.
Microsoft stock is on the IBD Tech Leaders list, as are fellow hyperscalers Amazon, Alphabet and Meta. Also on the Tech Leaders list are AI stocks Nvidia, AMD, Broadcom and Super Micro.
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