AI Enterprise Software – Demand Is Exceeding Supply At Microsoft?

ai in business

Even the kings of the digital world can find themselves in a tight spot with AI in business. Currently, Microsoft is spending large at a scale they have not in over 8 years. While the 79% surge spent by the industry giant is substantial, it may also not be enough.

The biggest problem they currently face is that the company is spending at a rate much higher and faster than it is increasing its revenue, with a 79% jump in capital expenditures against a 17% sales climb.

Common Industry Issue

Even with Microsoft’s sizeable investment, they suffer from a common problem facing many organisations – a shortage of data centre infrastructure for AI deployment. During Microsoft’s earnings call, CFO Amy Hood informed the analysts that their demand was exceeding their supply.

With the ever-increasing computing power required by companies to support their large workloads, human-like generative AI features being implemented into their products is an essential requirement. With the boom provided by OpenAI and ChatGPT, Microsoft needed to jump into the race by implementing assistants into their Teams communication app, Bing search engine, and a wave of other services under their umbrella.

These changes have helped summarise meeting transcripts, compose emails, and explain information from the internet, but the industry giant is not the only AI vendor that has had to step up against the challenges of the supply/demand issue.

Supplier Issue

Nvidia, a prominent developer of processors for training and deployment of enterprise generative AI, has also seen its fair share of challenges. Their supply has also been constrained, with their revenue tripling in the last few quarters. Their issues have trickled down the supply line to their biggest customer – who just so happens to be Microsoft.

Throughout Microsoft’s fiscal third quarter, revenue for their Azure cloud rose 31% with 7 percentage points from AI. The fiscal fourth quarter for the company is likely to showcase an impact on AI results due to the capacity issue, with less ability to rent capacity to clients deploying AI in business at an inference stage.

Future Problem

The unfortunate problem for Microsoft with the capacity issue is that its Azure cloud is a huge part of the company’s future – one that brings tens of billions in revenue every quarter and is escalating faster than any other product or service. AI is a major part of its appeal, with new clients feeling it is the premier alternative to Amazon Web Services.

Microsoft has expressed that their capital expenditures will continue to increase in the current quarter, focused on cloud infrastructure. However, the company plans to scale to meet the increasing demand signal for its cloud and enterprise AI products.

Are these issues ones that will plague Microsoft or will they be able to bounce back? As a leading software provider worldwide, Microsoft is not averse to spending large sums of money but has not faced anything like this expenditure since 2016. With $14 billion spent in capital expenditures in the last quarter, and the company materially bumping them up this quarter, businesses in the UK will be keeping an eye on how enterprise-generative AI plays out this year.

Attend an AI Event in the UK

This is a topic of conversation that guest speakers at the UK’s premier Enterprise AI & Big Data event, held on June 19 in London, will look to focus on. With engaging talks on best practices, strategies, and business growth, this event aims to connect businesses and enterprises to the emerging technologies and issues around AI and Big Data.

Join Whitehall Media on June 19th, 2024 in London for this important AI in business-focused event.