Microsoft Says It’s Seeing More Demand for AI Than It Can Keep Up With

After Microsoft (MSFT) reported fiscal first-quarter earnings that topped analysts' estimates, CFO Amy Hood told investors on the company’s earnings call that demand for artificial intelligence (AI) “continues to be higher than our available capacity.”

Microsoft's Intelligent Cloud segment, which includes the Azure cloud computing platform, led growth in the quarter. Its revenue was up 20% year-over-year to $24.09 billion as demand for AI surged, though shares fell after a warning growth could slow in the second quarter.

The Fastest-Growing Business in Microsoft's History

CEO Satya Nadella said usage of Azure’s Open AI service more than doubled over the past six months, with Microsoft’s AI business on track to reach an annual revenue run rate of $10 billion in the second quarter, which would make it “the fastest business in our history to reach this milestone.”

“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. 

Cloud Growth Could Slow Before Picking Up in the Second Half of 2025

Hood said Microsoft expects Intelligent Cloud growth could slow to between 18% and 20% in the second quarter, with Azure’s growth expected to decelerate to between 31% and 32%, before speeding up again in the back half of the fiscal year. 

Microsoft shares dropped over 5% in early trading Thursday, a day after the company's earnings call, though even with Thursday's losses, they've gained more than 8% since the start of the year.

UPDATE—Oct. 31, 2024: This article has been updated to reflect more recent share price information.

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