Summarize this content to 2000 words in 6 paragraphs in Arabic Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.When it comes to the artificial intelligence gold rush, investors are opting for the perceived safety of the picks-and-shovels play rather than the miners. That could be a mistake.The market had drastically different reactions to earnings from Microsoft and Advanced Micro Devices this week. The software and cloud giant run by Satya Nadella had a solid quarter. Revenue rose 15 per cent and net income increased 10 per cent to $22bn during the fiscal fourth quarter to June. Both numbers were slightly ahead of forecasts. Yet Microsoft shares fell in after-market trading.Chipmaker AMD, seen as the closest rival to AI-chip leader Nvidia, also had a good quarter. Revenue rose 9 per cent while net income jumped to $265mn from $27mn in the year ago period. The stock gained 8 per cent after-hours.Microsoft had the burden of high expectations, under pressure to show results from the company’s massive investments in AI. Instead, the company said growth at Azure, its cloud-computing service unit, slowed to 29 per cent during the quarter. Total capital expenditure — all cloud and AI-related spend — jumped almost 80 per cent year-on-year to $19bn. For the 2024 fiscal year, the total was $55.7bn. Microsoft said that spending would continue to rise next year.AMD meanwhile boosted its 2024 AI chip revenue forecast and said supplies would remain tight through 2025. But look closer: Microsoft and AMD are telling a similar story. There is pent-up demand for AI out there. The reason Azure’s growth slowed was that demand is outstripping its capacity to meet it. Nadella is right to defend its spending plans. If Microsoft cannot build capacity fast enough, customers will go elsewhere. Moreover, about half its capex goes on land and build and finance leases. These are assets that are flexible and can used for other computing needs.Among companies throwing money at AI, Microsoft arguably has the most to show for it. It has rolled out a large range of services, including an AI-enhanced customer contact service, for $110 a month. Microsoft can also afford to spend big. Cash flow from operations was $119bn during the fiscal year. Return on capital has held steady at between 21 and 22 per cent over the past four years. Shareholders have also been rewarded handsomely. Microsoft shares are up 26 per cent over the past year and the company has returned some $34bn to investors. Nadella, who has steered a stagnating Microsoft from a $381bn valuation in 2014 to a $3tn valuation, deserves the benefit of the doubt. pan.yuk@ft.com
