Microsoft reported its first-quarter earnings after the bell on Wednesday. According to reports, the company beat expectations on profit and revenue, with the strong demand in its cloud business driving results. However, the company registered a 2% drop in its stock after it revealed a jump in spending tied to AI hardware.
According to company report, Microsoft made $77.7 billion in revenue for the quarter compared to $65.6 billion it recorded in the same quarter last year. Earnings per share were about $3.72, up from the $3.30 registered last year and higher than analysts’ expectations of $3.68. Microsoft also recorded a revenue of $49.1 billion in commercial cloud, a figure that is up by 26% year over year and above the $48.6 billion estimate.
Microsoft also reported that its Intelligent Cloud division, which includes Azure, also reported a revenue of $30.9 billion, beating the $30.2 billion predicted by Wall Street analysts. Microsoft also reported that capital expenditures were up by 74% from last year to $34.9 billion, noting that about half of that total went into GPUs and CPUs to support demand for Azure. The spending increase was large enough to concern investors, who have grown sensitive to the cost of scaling AI.
Microsoft increases AI spending amid a rise in Azure demand
Microsoft mentioned that the rise in spending was tied to growth in its AI workloads. The company has been increasing investments in data centers and chips as its users continue to adopt AI tools. Part of the spending is connected to the partnership with OpenAI. The two firms recently drafted new terms that changed the structure of OpenAI and how both sides invest in AI growth. Under the new agreement, OpenAI will change into a for-profit public benefit corporation overseen by its nonprofit.
Microsoft is also expected to hold a 27% stake in the OpenAI Group PBC, a holding that is valued at around $135 billion, with the OpenAI nonprofit holding around $130 billion worth of shares. Microsoft has already invested billions into OpenAI, and the new agreement structure shows that both firms want to continue their collaboration. Microsoft was previously the exclusive cloud provider for OpenAI, with the partnership allowing the company to draw AI traffic directly into Azure.
The new deal removes Microsoft’s first right of refusal, meaning that OpenAI can use additional cloud providers without offering Microsoft the first chance to host new workloads. OpenAI has already partnered with Oracle to support the Stargate Project data centers. Even so, OpenAI has committed to spending $250 billion on Azure usage under the new structure. Satya Nadella, Chairman and CEO of Microsoft, said the company is increasing its investment in AI infrastructure and talent.
“Our planet‑scale cloud and AI factory, together with Copilots across high-value domains, is driving broad diffusion and real‑world impact,” he said. Nadella said the company is continuing to invest to meet growing demand. Amy Hood, Microsoft’s chief financial officer, said the quarter exceeded expectations in revenue, operating income, and earnings per share. Hood said the growth reflects continued demand for Microsoft’s cloud offerings. Microsoft is also expanding AI tools in its consumer business.
