Key takeaways Multiple Microsoft divisions reportedly lowered AI software sales growth targets after sales staff missed fiscal year goals. Microsoft denied the report, stating that aggregate sales quo...
According to a report from The Information, multiple divisions at Microsoft lowered sales growth targets for certain AI products after many sales staff failed to meet goals in the fiscal year that ended in June.
The report cited two salespeople in the Azure cloud-computing unit, which is closely watched by investors as the primary beneficiary of Microsoft's AI initiatives.
The report specified that one U.S. Azure sales unit had set quotas for sales staff to increase customer spending on Foundry, a tool used to build AI applications, by 50% in the last fiscal year.
However, less than a fifth of sales staff met these targets. In July, the company reportedly lowered targets to approximately 25% growth for the current fiscal year.
Microsoft shares fell nearly 3% in early trading following the report's publication. The stock later pared some losses after the company issued a denial, closing down 1.7%.
Microsoft quickly pushed back against the report's characterization.
A company spokesperson stated, "The Information's story inaccurately combines the concepts of growth and sales quotas, which shows their lack of understanding of the way a sales organization works and is compensated." The spokesperson added, "Aggregate sales quotas for AI products have not been lowered, as we informed them prior to publication."
Reuters could not independently verify the report from The Information.
The report highlighted specific examples of customer struggles with Microsoft's AI products.
Carlyle Group reportedly began using Copilot Studio last year to automate tasks such as meeting summaries and financial models, but subsequently cut its spending on the product after experiencing difficulties getting the software to reliably pull data from other applications.
Microsoft did not respond to queries about whether Carlyle had reduced spending on Copilot Studio.
Industry analysts suggest these challenges reflect the nascent stage of enterprise AI adoption. D.A. Davidson analyst Gil Luria said, "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."
An MIT study from earlier this year found that only about 5% of AI projects advance beyond the pilot stage, underscoring the gap between AI hype and practical implementation.
The controversy comes as U.S. tech companies face mounting pressure to demonstrate returns on massive AI infrastructure investments.
Microsoft reported a record capital expenditure of nearly $35 billion for its fiscal first quarter in October and warned that spending would continue to rise throughout the year.
Overall, U.S. tech giants are expected to spend approximately $400 billion on AI in 2025.
Despite the reported sales challenges, Microsoft's AI investments have shown some positive results.
Revenue at its Azure cloud-computing unit grew 40% in the July-September period, surpassing expectations. The company's fiscal second-quarter forecast also exceeded estimates.
The AI push has helped Microsoft become the second company to reach a $4 trillion valuation this year after Nvidia, though its market value has since retreated.
Microsoft has predicted it will remain short on AI capacity at least until the end of its current fiscal year in June 2026.
Surging tech valuations combined with signs of slow AI adoption have fueled concerns among some investors about a potential bubble reminiscent of the dot-com boom of the 1990s.
The debate over whether massive AI infrastructure spending will translate into sustainable revenue growth continues to intensify across the technology sector.
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