Microsoft cuts AI sales targets as customers struggle to adopt new tools

Multiple divisions at Microsoft have lowered sales growth targets for certain artificial intelligence products after many sales staff missed goals in the fiscal year that ended in June, The Information reported on Wednesday.

It is rare for Microsoft to lower quotas for specific products, the report said, citing two salespeople in the Azure cloud unit. The division is closely watched by investors as it is the main beneficiary of Microsoft's AI push.

Shares of the company, one of the biggest winners of the AI boom due to its early bet on ChatGPT-maker OpenAI, fell nearly 3%. The stock has gained just 15% this year, lagging AI rival Alphabet's nearly 65% surge.

Microsoft did not immediately respond to a Reuters request for comment.

Worries over AI bubble

Lower sales growth goals for its AI products are likely to fans fears about real-world adoption of the technology as investors fear the frenzy driving up valuations has turned into a bubble. An MIT study from earlier this year had found that only about 5% of AI projects advance beyond the pilot stage.

The Information report said Carlyle Group last year started using Copilot Studio to automate tasks such as meeting summaries and financial models, but cut its spending on the product after flagging Microsoft about its struggles to get the software to reliably pull data from other applications.

The report shows the industry was in the early stages of adopting AI, said D.A. Davidson analyst Gil Luria. "That does not mean there isn't promise for AI products to help companies become more productive, just that it may be harder than they thought."

U.S. tech giants are under investor pressure to prove that their hefty investments in AI infrastructure are generating returns.

Record spending

Microsoft reported a record capital expenditure of nearly $35 billion for its fiscal first quarter in October and warned that spending would rise this year. Overall, U.S. tech giants are expected to spend around $400 billion on AI this year.

The companies have said the outlay is necessary to overcome supply constraints that have hobbled their ability to capitalize on AI demand.

Microsoft has predicted it would remain short on AI capacity at least until the end of its current fiscal year in June 2026.

The spending has so far paid off for the Satya Nadella-led company as revenue at its Azure cloud-computing unit grew 40% in the July-September period, outpacing expectations. Its fiscal second-quarter forecast was also above estimates.

The AI push has also helped Microsoft become the second company to hit a $4 trillion valuation this year after Nvidia, although its market value has retreated since then.

Unlock more exclusive Cybernews content on YouTube.