The latest results from Microsoft, Meta and Apple highlight a shift in investors’ approach to artificial intelligence. Simply increasing spending on AI is no longer enough. What is becoming increasingly important is whether new technologies translate into revenue, margins and cash flow.
Microsoft provides the clearest example. In the quarter ending in June, the company’s revenue rose by 18 per cent to $90 billion, whilst sales of Azure and other cloud services increased by 43 per cent. Microsoft also reported that Azure has surpassed $100 billion in annual revenue, and that Microsoft 365 Copilot has over 30 million paying users. At the same time, quarterly capital expenditure reached $35.8 billion.
Meta is also growing rapidly. Its revenue rose by 28 per cent to $60.8 billion, but capital expenditure totalled over $31 billion. Free cash flow fell to $784 million. This illustrates the scale of the costs involved in the race for AI infrastructure.
Apple remains a more classic example of a strong consumer business. Revenue rose by 16 per cent to $109.4 billion, with the iPhone, Mac and services, amongst others, posting record quarterly figures. The company is developing its own AI solutions, but for the time being is not demonstrating their impact on results as clearly as Microsoft.
The backdrop remains the Fed’s cautious policy. Interest rates stand at 3.5–3.75 per cent, whilst PCE inflation reached 3.7 per cent year-on-year in June.
AI continues to drive investment, but it may also widen the gap between companies. The greatest advantage will go to those that are able to simultaneously finance costly infrastructure and quickly convert it into growing revenue.
