Key keywords: Microsoft Q3 2024 earnings, Microsoft worst quarter since 2008, Microsoft AI investment cost, Microsoft Azure revenue slowdown, Microsoft 365 Copilot monetization, tech giant quarterly performance, AI infrastructure capital expenditure Microsoft has officially issued its fiscal third-quarter 2024 earnings guidance, projecting revenue and profit growth that falls far short of Wall Street expectations, marking the tech giant’s worst quarterly performance outlook since the 2008 global financial crisis. The underperformance is widely attributed to two overlapping pressures from the company’s aggressive artificial intelligence expansion, as referenced in the earnings call with investors on Tuesday. The first drag comes from skyrocketing capital expenditure for AI infrastructure. Microsoft has ramped up spending on data center construction, high-performance GPU procurement (primarily Nvidia’s H100 and H200 chips), and cross-region cloud network upgrades to support the growing demand for AI computing power. The company’s capital expenditure for the current quarter is expected to surge 47% year-over-year to $14 billion, a figure that has exceeded analyst estimates by nearly 12%, directly squeezing operating margins by 3.2 percentage points compared to the same period last year. The second pressure stems from the slower-than-expected monetization of Microsoft’s Copilot product line. While the company launched Microsoft 365 Copilot for enterprise users in November 2023 at a $30 per user per month price point, only 15% of existing enterprise customers have converted to paid Copilot subscriptions as of the end of March 2024, with most clients still in the free trial phase to evaluate productivity gains before scaling up purchases. The previously expected revenue boost from Office 365 price hikes also faded in the current quarter, further dragging down productivity business segment growth to 8% year-over-year, the lowest rate since 2019. Azure, Microsoft’s core cloud computing unit, also reported a 26% year-over-year revenue growth rate for the quarter, 4 percentage points lower than analyst consensus, as many clients shifted a portion of their cloud budgets to one-off AI infrastructure investments rather than recurring cloud service subscriptions. Microsoft CEO Satya Nadella noted during the earnings call that the company remains confident in long-term AI returns, projecting that Copilot revenue will hit $10 billion annual run rate by the end of fiscal 2025, but acknowledged that short-term margin pressure will persist for the next 2 to 3 quarters. Following the guidance release, Microsoft’s stock dropped 6.8% in after-hours trading, erasing more than $210 billion in market capitalization.