Microsoft is spending more money than it has since at least 2016. It may not be sufficient even then.

Microsoft reported in its earnings report on Thursday that its capital expenditures reached $14 billion, a 79% increase from the previous year. The company's spending is growing far faster than its revenue; during that time, revenues increased by 17%.

Microsoft lacks data center infrastructure, particularly for implementing artificial intelligence models, despite all of that expenditure.

During the company's results call, Microsoft Chief Financial Officer Amy Hood informed investors, "We do have demand that exceeds our supply by a bit."

In order to handle heavy workloads and include human-like generative AI capabilities into their products, businesses require ever-increasing amounts of processing power. OpenAI and its ChatGPT chatbot started this explosion, and Microsoft has now followed suit by integrating assistants into its Bing search engine, Teams messaging program, and other applications. Technology can create emails, annotate meeting transcripts, and interpret information from the internet.

There are other AI hardware vendors facing supply issues besides Microsoft.

The largest processor manufacturer for generative AI model training and deployment, Nvidia, has seen supply constraints as its revenue has more than tripled over the last three quarters. Microsoft, one of Nvidia's principal clients, is currently under pressure.

Revenue in Microsoft's Azure cloud increased 31% in the third quarter of fiscal year, with artificial intelligence contributing 7% of this growth. According to Hood, the capacity problem may already have an influence on AI outcomes and will likely do so in the fourth quarter of the fiscal year. According to her, Microsoft has less capacity available to rent out to clients for the deployment of AI models at the inference stage due to a supply bottleneck.

Azure, which generates tens of billions of dollars in sales each quarter and is expanding more quickly than most other divisions inside Microsoft, is essential to the company's future. Azure's AI services are a standout feature that draws in new customers as Microsoft competes with Amazon Web Services.

Hood stated that the current quarter will see a "material" rise in capital expenditures, mostly for cloud infrastructure. She also demanded more capital spending for the upcoming fiscal year.

"To meet the growing demand signal for our cloud and AI products," Microsoft plans to scale, the spokesperson stated.