Microsoft's Surging Cloud Sales Show AI Spending Paying Off

Sales at Azure, the closely watched cloud computing division, grew 48% to $33.2 billion during the quarter ending in September, the company said in a statement Wednesday. Overall revenue increased 19% to $92.3 billion. Analysts were looking for 44% sales growth at Azure and 17% total revenue growth.

The shares rose about 3% in extended trading after closing at $531.01. Microsoft's stock had already surged 36% since reporting blowout earnings on July 29.

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The world's largest software maker is working to monetize artificial intelligence by selling AI-enhanced workplace applications as well as access to models via Azure. For years, the business has been held back by a shortage of computing power, so Microsoft has embarked on an ambitious building plan to bolster its fleet of server farms.

Capital expenditures - a key metric of data center spending - increased 30% to $45.2 billion in the quarter. That is lower than expected owing to delays in the delivery of some third-party cloud capacity, Investor Relations Chief Jonathan Neilson said in an interview.

Shares of neoclouds CoreWeave Inc. and Nebius Group N.V. that sell computing power to Microsoft slipped in extended trading.

Wall Street is growing increasingly nervous about the industry's huge outlays on AI. Meta Platforms Inc. was punished by investors last week after announcing it would lavish even more money on AI infrastructure.

Microsoft is trying to offset its own spending. Earlier this week, the company said it would offer buyouts to 60,000 employees, about a quarter of its workforce. Microsoft has shed tens of thousands of workers in recent years as AI investment squeezed budgets elsewhere in the company.

The company's capital spending is expected to exceed $50 billion in the current period, Chief Financial Officer Amy Hood said on a conference call after the results. She added that these expenses will increase in the first quarters of calendar year 2027.

Hood also said Microsoft would raise additional funds "when we believe it is attractive to do so." Several peers have either issued new equity or taken out new debt to pay for their data centers.

For the quarter ending in December, Azure sales will grow as much as 50%, when adjusting for currency fluctuations, Hood said on the call. Overall revenue will be as much as $97.1 billion. Each figure exceeded analyst estimates.

One of Microsoft's main competitors, Alphabet Inc.'s Google, reported similarly strong results for its cloud infrastructure unit Wednesday. But that was overshadowed by disappointing sales from other core businesses including search advertising.

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Microsoft's first-quarter profit per share, excluding some items, was $4.89, compared with an average estimate of $4.72

Microsoft said revenue from commercial arrangements with OpenAI, including revenue-sharing payments the software company receives from its close partner, totaled $10 billion during the quarter. That represents about 11% of Microsoft's total sales, up from about 7% of revenue during the company's fiscal year that ended in June.

Sales for the bundle of workplace products that include Office were $27.8 billion, compared with the average analyst estimate of $27.5 billion. The company did not provide an updated number of paying users for Copilot, its flagship AI assistant that had about 30 million users three months ago.