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In a significant market development, Microsoft witnessed a staggering £200 billion erosion in market capitalisation after its cloud division reported growth figures below Wall Street’s projections, highlighting the tech giant’s challenges in meeting the surging demand for AI-related services.
The Seattle-based technology powerhouse exceeded analyst expectations for overall revenue and net income in the December quarter. However, its cloud division, which encompasses the Azure cloud computing platform and serves as the company’s primary revenue generator, marginally missed projected targets despite Azure’s AI services recording an impressive 157% year-on-year growth.
Chief Financial Officer Amy Hood addressed the situation, indicating that capacity constraints would continue to impact operations into 2025 as the organisation works to resolve execution challenges. The cloud division posted a 21% revenue increase to £40.9 billion, falling short of the £41.1 billion anticipated in Bloomberg’s survey, triggering a 6% decline in share value.
The company’s capital expenditure reached £22.6 billion in the second quarter, doubling from the previous year’s figures. This substantial investment aligns with Microsoft’s recently announced plans to allocate approximately £80 billion this fiscal year for developing data centre infrastructure essential for AI model training and application deployment.
Market concerns have emerged regarding Chinese competitor DeepSeek, which claims to deliver AI capabilities comparable to Microsoft-backed OpenAI at substantially lower costs. Chief Executive Satya Nadella acknowledged DeepSeek’s achievements, particularly in matching OpenAI’s o1 model performance, whilst maintaining an optimistic outlook on market dynamics.
The tech giant’s partnership with OpenAI continues to evolve, with recent modifications allowing the start-up to utilise competing cloud services. This strategic shift comes as OpenAI embarks on ambitious infrastructure projects, including the £100 billion Stargate initiative with Oracle and SoftBank, where Microsoft maintains a technical partner role.
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