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Microsoft: Rising cost of AI could weigh on share price, analysts warn

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Microsoft recorded another strong quarter in the three months to December but investors were concerned about the rising costs of investment in AI.

In the three months to December, Microsoft’s revenue increased by 16 per cent to hit $62bn, roughly in line with expectations.

The increase in revenue came as customers continued to flock to Microsoft’s cloud and AI offerings. Its cloud services, which includes its Azure platform, saw revenue rise by 19 per cent.

On a call following the results yesterday evening, boss Satya Nadella said the firm now has 53,000 Azure AI customers. One-third of those are new in the past year, he said.

“We’ve moved from talking about AI to applying AI at scale,” Nadella, said in a statement. “By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.”

Microsoft’s ‘more personal computing’ division meanwhile saw revenue rise 18 per cent. The tech giant’s acquisition of Activision, completed in October last year, also seems to be paying off with revenue on Xbox content up 60 per cent.

Microsoft has been at the forefront of AI innovation and got a headstart by backing ChatGPT creator OpenAI. Its shares climbed over 60 per cent last year as investors rushed to cash in on the AI frenzy.

However, investors were concerned by the rising costs that Microsoft is incurring as it continues to invest in AI. It forecast that operating expenses in the third quarter would be between $15.8bn-$15.9bn, up from $15.4bn in the previous quarter.

Its shares were down as much as two per cent after market close, although recovered slightly.

“The software giant has delivered a healthy set of results, but not in a strong enough dose to appease the market,” Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said.

“Spending on both cloud and advertising are due to increase but the pace of this could leave room for disappointment, depending on where the economy lands,” she continued.

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