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Demand for cloud and AI services is driving hyperscalers to boost infrastructure investments
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Microsoft and Google Cloud already increased capex significantly in calendar Q1 2024
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Spending on infrastructure is expected to remain high throughout 2024
When you're rolling in profits you can reinvest some of that money into your business. No one knows that better than hyperscalers Microsoft and Google Cloud, both of whom said they’re planning to spend big to expand their cloud infrastructure to accommodate demand for AI services.
“The opportunity to power that next wave of cloud infrastructure is important,” Microsoft CFO Amy Hood said during an earnings call in response to questions about its capex plans. “It's important because we've been the leader for this decade of the cloud transition, and it's important for us to confidently invest to do that in the second wave, building on our success in the first.”
Microsoft’s earnings report showed it spent roughly $14 billion on capex in its fiscal Q3 2024 (roughly calendar Q1), including $11 billion on property and equipment – nearly double what it spent in the same period the year prior.
CFO Amy Hood stated its capex figure is expected to “increase materially” over the coming quarters thanks to cloud and AI investments, implying the company will spend well over $50 billion in calendar 2024.
Meanwhile, Google Cloud said it spent $12 billion on capex in Q1 – mostly on servers and data centers – and expects spending to remain at or above those levels for the remainder of the year. For comparison, last year it spent about $6.3 billion on capex in Q1.
In a note to investors, New Street Research predicted Microsoft will spend $52 billion on capex in calendar 2024 and $55 billion in 2025, with Google Cloud close behind with expected capex of $49 billion this year and $52 billion next.
Amazon Web Services reports next week.
Earnings snippets
Alphabet: Consolidated revenue rose 15% year on year to $80.5 billion, with net income jumping from $15.1 billion to $23.7 billion. Google Cloud revenue of $9.6 billion was up from $7.5 billion the year prior, with segment operating income rising dramatically from $191 million to $900 million.
“On the Cloud side, obviously, it's definitely a point of inflection overall. I think the AI transformation is making everyone think about their whole stack, and we are engaged in a number of conversations,” Alphabet CEO Sundar Pichai said.
He continued: “There are switching costs to Cloud, and the challenge we see is how do we make it easier for people. There's a lot of interest, but there's definitely barriers in terms of people switching, and so that's an area where we are constantly investing to make it easier for our customers.”
Microsoft: Total revenue jumped 17% year on year to $61.9 billion, with net income up 20% to $21.9 billion. Microsoft Cloud revenue specifically jumped 23% to $35.1 billion. Azure and other cloud services revenue grew 31% but Microsoft didn’t provide a breakout figure.
“Our AI innovation continues to build on our strategic partnership with OpenAI, more than 65% of the Fortune 500 now use Azure OpenAI service,” CEO Satya Nadella said. “The number of $100 million-plus Azure deals increased over 80% year over year, while the number of $10 million-plus deals more than doubled.”