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Microsoft has increased capital expenditures to approximately $34.9 billion to $35 billion in fiscal Q1 (July–September), a staggering 74% increase. Management said spending will rise further this year to expand AI infrastructure. The company pointed to ongoing capacity constraints that it expects to persist through June 2026.
Azure revenue grew 40% in the quarter, topping Visible Alpha’s 38.4% consensus. Microsoft guided Azure growth of nearly 37% for the current quarter, a touch above expectations. The company forecast total revenue of $79.5 billion - $80.6 billion for the December quarter.
Total revenue rose 18% year over year to $77.7 billion. Earnings came in at $3.72 per share, beating estimates. Shares fell about 3% - 4% in after-hours trading as investors weighed the higher capital expenditures.
Microsoft recorded a $3.1 billion net income tied to its OpenAI investment. The company described the impact as an equity-method item that reduced EPS by $0.41 per share. Net income still rose to $27.7 billion.
A revised agreement gave Microsoft a 27% stake in OpenAI valued at about $135 billion. Under the deal, OpenAI committed to purchase an incremental $250 billion of Azure services over time. Microsoft no longer holds the right of first refusal on OpenAI’s future cloud workloads.
Executives stated that the rising demand for AI continues to outstrip available capacity. They plan to allocate resources to the highest-returning enterprise workloads while expanding the data center footprint. This approach aims to balance third-party demand with the needs of first-party products.
Management projected a slightly higher revenue for the December quarter than the consensus. The outlook indicates continued strength in cloud and AI services despite supply constraints. Analysts also noted that Azure’s growth exceeded expectations again.
However, the elevated spending rate drew fresh scrutiny. Investors questioned the timing of returns from expanding GPU and data center capacity. Microsoft’s stock remains near the $4 trillion valuation range, yet the after-hours pullback reflected caution.
Rivals also flagged higher capex as they chase AI demand. The sector now faces both growth and cost pressures as it expands its infrastructure. Microsoft announced that it will prioritize profitable workloads and continue investing to alleviate constraints.
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