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Microsoft was forced to increase AI spending by $25 billion to cover hardware price increases; He says he “remains confident in the return on these investments”

Microsoft was forced to increase AI spending by $25 billion to cover hardware price increases; He says he “remains confident in the return on these investments”

Azure revenue up 29%, but next quarter growth could jump 40%
Two-thirds of last quarter's capex was dedicated to CPUs and GPUs.
Microsoft 365 Copilot now has more than 20 million paying customers

In its latest quarterly results, Microsoft confirmed an 18% increase in revenue to $82.9 billion over the past three months, with Microsoft Cloud revenue up around 29% year-over-year to $54.5 billion and Azure growth of around 40%.

However, despite heavy customer spending on its products and services, the company has not been immune to rising prices and the global chip shortage, explained Chief Financial Officer Amy Hood.

With its AI business now approaching $37 billion in annual revenue (up 123% year over year), Microsoft is forced to spend heavily on AI and data center technology.

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Microsoft's revenue rises, capital spending rises further

Proof of continued growth comes in the form of a commercial order book of $627 billion, an increase of around 99%, indicating huge future demand for AI and cloud.

Consequently, capital spending in 2026 is expected to be around $190 billion, but alarmingly, Microsoft is attributing around $25 billion of that to rising component costs. The company will also spend $40 billion on hardware and data centers in the next quarter, Hood revealed.

That's a sharp increase from last quarter's $31.9 billion in capital spending, two-thirds of which went toward “short-lived assets” like CPUs and GPUs.

Speaking about capital expenditure projections for the fiscal year, Hood said: “We remain confident in the return on these investments given signs of higher demand and increased product usage, as well as the efficiencies we are already driving across the platform.”

Regarding AI usage, Microsoft declared “more than 20 million paid Microsoft 365 Copilot seats” and saw significant growth across major customers. It has 4 times more customers with more than 50,000 seats compared to last year; Accenture represents the largest client, with more than 740,000 seats.

Looking ahead, the company is targeting 13-15% overall revenue growth for the coming period, but more importantly around 39-40% Azure revenue growth.