*

Azure revenue grew 33%, beating estimates

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Microsoft's ( MSFT ) AI investments drive customer growth

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Capital expenditures rose 5.3% to $20 billion

(Adds AI's contribution to Azure growth, other business segment

growth, comment from VP of investor relations)

By Deborah Mary Sophia, Aditya Soni and Anna Tong

Oct 30 (Reuters) - Microsoft ( MSFT ) beat Wall Street

estimates for first-quarter revenue and profit on Wednesday as

efforts to build data-center capacity and AI-driven demand

boosted its cloud business.

Azure revenue grew 33%, compared with Visible Alpha estimates

for a 32% increase. Artificial intelligence contributed 12

percentage points to Azure's 33% growth in the quarter, compared

with 11 percentage points in the prior three-month period.

Shares of the Redmond, Washington-based company rose about

1% in after-market trading.

"We continue to see more demand than our current capacity.

People are signing multi-year deals and committing to a variety

of projects in the future, across cloud and AI," said Brett

Iversen, Microsoft's ( MSFT ) vice president of investor relations. "The

AI opportunity still feels really early."

Microsoft ( MSFT ) expects to more noticeably bring on AI capacity in

the second half of the fiscal year, Iversen said. Whether that

expansion will address current constraints depends on the growth

in demand, he said.

The quarterly earnings are Microsoft's ( MSFT ) first since it

restructured the way it reports its businesses to align them

more closely with how they are managed. That move has, however,

made it harder to estimate the quarter's performance.

Earnings per share stood at $3.30, compared with analysts'

average estimate of $3.10, according to LSEG data.

Revenue rose 16% to $65.6 billion in the fiscal first

quarter ended September, compared with analysts' average

estimate of $64.5 billion, according to LSEG.

Microsoft ( MSFT ) has been the worst performer among Big Tech names

this year, having gained just over 15%, while Meta has surged

68% and Amazon climbed 28%.

Seen as the leader among Big Tech peers in the AI race thanks to

its exclusive partnership with ChatGPT maker OpenAI, Microsoft's ( MSFT )

Azure customers get access to OpenAI's cutting-edge AI models.

Microsoft ( MSFT ) has also been working to infuse OpenAI's technology

across its product portfolio, such as in Azure, Bing and also

Microsoft ( MSFT ) 365, which includes Word, Excel and PowerPoint, but

that effort has not gone as well as expected.

The company has said that Azure's market share gains were being

driven by AI, as it loaded the cloud computing platform with AI

features and models - including OpenAI's newest o1 models,

capable of answering challenging math, science and coding

problems.

Microsoft's ( MSFT ) rival Google has also benefited from AI growth. On

Tuesday, Alphabet said AI helped drive a 35% surge in

its cloud business. Its shares closed up over 2.8% on Wednesday,

but were flat in after-hours trading.

Microsoft ( MSFT ) has been pouring billions into building its AI

infrastructure and expanding its data-center footprint to ease

capacity constraints that have hampered its ability to meet the

surge in cloud-computing demand.

The hefty investments have pushed up the company's capital

spending in recent quarters, raising concerns among some

investors. The company will spend over $80 billion this fiscal

year, which began in July, according to analyst estimates from

Visible Alpha. That is an increase of more than $30 billion from

its last fiscal year.

For the quarter, Microsoft ( MSFT ) said capital expenditures rose

5.3% to $20 billion, compared with $19 billion in the previous

quarter. That was higher than Visible Alpha estimates of $19.23

billion.

Outside its cloud business, Microsoft ( MSFT ) reported revenue of $28.3

billion in its productivity business, which houses its Office

suite of applications, 365 Copilot and its AI and

speech-technology services.

Microsoft's ( MSFT ) personal-computing unit, home to its Windows

operating system as well as devices including Surface and gaming

products including Xbox hardware, content and services, reported

a 17% rise in revenue to $13.2 billion.

(Reporting by Deborah Sophia in Bengaluru and Anna Tong in San

Francisco; Editing by Anil D'Silva and Rod Nickel)