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TechMicrosoft holds AI capex guidance steady, bucking industry trend of rising spending
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Microsoft kept its capital expenditure forecast unchanged during its Wednesday earnings call, becoming one of the first major data center companies to hold the line on AI spending. The company had previously planned to spend $190 billion this year, but an accounting change now puts the guidance at $175 billion, with actual AI spending plans remaining steady. The decision contrasts sharply with rivals like Alphabet, Tesla, and Meta, which have all raised their capex forecasts recently, leading to stock declines. Microsoft's stock surged about 8% on the news. The article notes that rising AI spending across the industry has been partly driven by soaring memory chip prices, which account for about 45% of capex growth. By keeping its plans unchanged, Microsoft may effectively be pulling back slightly from building new capacity.
Source report
Microsoft kept its capital expenditure (capex) forecast unchanged on Wednesday, becoming one of the first major data center operators to hold the line on the industry's surging AI spending spree.
The company's stock surged approximately 8% on the news.
Spending Plans Remain Unchanged
Earlier this year, Microsoft announced plans to spend $190 billion on capital expenditures this calendar year. During Wednesday's earnings call, the company maintained this spending forecast. Due to an accounting change, the capex guidance now stands at $175 billion. However, in real terms, Microsoft is keeping its AI capex plan unchanged for the year.
A Departure from Industry Norms
The decision to cap spending is unusual. Most cloud giants have been steadily increasing their AI spending forecasts as they compete for a larger share of this fast-growing market.
However, investors have grown increasingly concerned about the returns on these massive investments. This has led some on Wall Street to question whether tech giants would scale back during this earnings season.
Contrasting Moves by Competitors
- Alphabet recently increased its capex projection by $15 billion.
- Tesla also raised its own projection.
- Both stocks fell sharply last week on the news, as investors penalized the higher spending plans.
- Meta narrowed its capex forecast range on Wednesday, raising the midpoint by $2.5 billion for the year.
Even before Alphabet's increased forecast, Google, Amazon, Microsoft, and Meta had already outlined plans to spend more than $700 billion this year, largely on AI data centers.
Impact of Rising Memory Costs
That spending binge has driven memory chip prices sharply higher this year. Memory represents a significant portion of data center costs, making AI capacity more expensive to build.
This means that rising AI capex forecasts have been at least partly driven by higher memory costs, rather than new plans to expand capacity.
Earlier research found that soaring memory prices could explain approximately 45% of the growth in capex by major cloud companies this year.
Implications of Microsoft's Steady Forecast
With Microsoft keeping its capex plans unchanged, this could imply the company is actually pulling back slightly from building additional capacity.
Source
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Microsoft Holds AI Capex Steady, Bucking Industry Trend of Rising Spending