Microsoft revenue hits $90 billion as Azure crosses $100 billion milestone despite record AI spending

Microsoft's cloud brings rain of revenue

Microsoft on Wednesday reported $90 billion in revenue for the quarter ended June 30, an increase of 18 percent, lifting its stock more than 7 percent in after hours trading. The cash intake was more than Wall Street analysts anticipated, and showed up where it counted - the company's cloud business and AI services. Microsoft Cloud revenue reached $59.3 billion, up 27 percent year-over-year, and its Azure business revenue grew 43 percent. Meanwhile, Microsoft 365 Copilot's paid user base increased 50 percent from the previous quarter. "We are advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results," said Satya Nadella, chairman and chief executive officer of Microsoft, in a statement celebrating the results for the final quarter of Microsoft's 2026 fiscal year. "This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation." Thirty million out of an estimated 450 million Microsoft 365 commercial customers isn't an overwhelming vote of confidence in Copilot AI, but it's something, particularly given Microsoft's imposition of usage-based billing on top of seat-based charges. Operating income for the quarter came to $40.6 billion (+18 percent). And net income was $35.8 billion (+31 percent), for diluted earnings per share of $4.81 (+32 percent). Microsoft's investment in Anthropic accounted for a gain of about $3.2 billion this quarter. For the full fiscal year that ended June 30, 2026, revenue reached $331.8 billion, up 18 percent, with operating income at $155.2 billion (+21 percent), net income at $133.7 billion (+31 percent), and $17.95 EPS (+32 percent). The results were enough to assuage concerns about Microsoft's enthusiastic capital spending, which reached $41 billion, up 70 percent from a year earlier and about 28 percent more than $31.9 billion reported last quarter. Some of the shareholder optimism may be attributable to Microsoft's use of finance leases, which allow the company to invest in datacenters without paying immediately. During Microsoft's investor conference call, CFO Amy Hood said that about two-thirds of the company's capex took the form of short-lived assets like CPUs and GPUs. Finance leases accounted for about $5.6 billion of capex, she said. Microsoft claims to have a lot of potential customers waiting in the wings to use datacenters it is currently building. "Commercial remaining performance obligation grew 84 percent to $678 billion," said Hood, noting that customer demand for cloud services exceeds available capacity. "Microsoft's capex number is arguably the most closely watched line in this report, and it arrived with a case for optimism rather than alarm," said Emarketer analyst Gadjo Sevilla in a statement provided to The Register. "Microsoft spent $35.80 billion on property and equipment during fiscal Q4, more than double the $17.08 billion in the year-ago quarter, bringing full-year capital expenditures to $115.95 billion - up nearly 80 percent from $64.55 billion in fiscal 2025. Despite that spending pace, the company still generated $55.44 billion in quarterly operating cash flow, up 30 percent YoY, a positive sign the AI buildout isn't cannibalizing the core business." While Microsoft enjoys strong revenue, concern about potentially unrequited AI spending - exemplified by Meta's disappointing financial results - continues to linger. Fitch Ratings on Monday warned that the possibility of an AI market correction has emerged as a major credit risk. "The combination of revenue uncertainty and the extent to which capital markets and economies have become intertwined with AI have created a vulnerability for credit in the event of a re-evaluation of long-run returns potential," the financial biz said. "Very short-term spikes in market volatility for individual equities and tech-heavy stock indices have already occurred, but a larger, more protracted correction could have wider market, macro and credit effects depending on its scale, duration and contagion." ®

Microsoft's cloud business boosts sales as AI investment climbs to $41bn

Microsoft's sales rose 18 per cent to $90bn in the three months to the end of June, ahead of analysts' expectations of $87.7bn, as the tech group's cloud business continued to accelerate. Sales in the tech group's intelligent cloud segment, which houses its Azure platform, rose 32 per cent to $39.3bn. Microsoft does not put a dollar figure on Azure's sales but said it grew 43 per cent year on year, as AI demand pushed usage higher. Net income rose 31 per cent year on year to $35.8bn during the three-month period, inflated by a gain on the group's stake in AI lab Anthropic, Microsoft said on Wednesday. Chief executive Satya Nadella said Azure's revenue had surpassed $100bn over the past year and the Microsoft 365 Copilot had reached more than 30mn paid users, "reflecting the confidence customers are placing in us to power their AI transformation". Microsoft's shares are down about 17 per cent this year as investors fret over a capital spending arms race that has sapped its free cash flow as well as the durability of its software franchise in the AI era. The stock was up 3 per cent in after-hours trading. The group in April said its capital expenditure for 2026 would come in at $190bn with most of the spending falling in the back half of the year. Microsoft's capex in the quarter was $41bn, up 70 per cent year on year.

Microsoft beats Wall Street expectations with $90B in revenue

Microsoft posted strong results for its quarterly earnings on Wednesday, beating expectations and showing strong growth in its cloud computing platform and a boost in paid AI users. The Redmond, Washington, company earned $90 billion, or $4.81 per share, in the April-June quarter. That is up 18% from the same period a year earlier. Analysts surveyed by FactSet Research had expected the company to earn $4.24 per share on revenue of $87.62 billion this quarter. Microsoft Cloud revenue was $59.3 billion this quarter, up 27% year-over-year. That growth reflects the demand across Microsoft's cloud computing platform Azure, as well as its first-party AI applications and services. Azure and other cloud services revenue increased 43%. For the full fiscal year, which closed out at the end of June, the company brought in $331.8 billion in revenue. "This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation," CEO Satya Nadella said in a statement Wednesday. Investors had been looking for evidence that Azure and Copilot, Microsoft's flagship AI assistant, could eventually produce returns as concerns about high AI spending had steadily grown across the industry. "We remain very confident in the long-term return on these investments, given these strong demand signals, the increasing product usage we've seen and the efficiencies that we're driving across the platform," said Danielle Criste, Microsoft's director of investor relations, in an interview. Microsoft's shares rose nearly 3% to $402.07 in after-hours trading after the results came out.

Microsoft Azure tops $100B in annual revenue as record AI spending cuts into cash flow

Microsoft's Azure cloud business grew 43% last quarter, blowing past the company's own forecast and surpassing $100 billion in annual revenue for the first time, providing fresh evidence of the potential for artificial intelligence to fuel new growth for the tech giant. The company's results for its fiscal fourth quarter also showed the price of that growth: capital spending hit a record $41 billion, largely to support the company's AI buildout, and free cash flow sank 23% even as operating profits jumped 18%. And in a new twist, Microsoft shares rose more than 3% in initial after-hours trading, in contrast with the recent pattern in which the company's strong results were met with selloffs that pushed its stock near a one-year low. Companywide results: Overall, Microsoft reported revenue of $90 billion for the quarter, up 18% from a year ago, and net income of $35.8 billion, up 31%. Analysts had expected $87.7 billion in revenue, a figure that was already at the top of Microsoft's own guidance range. Earnings were $4.81 per share, topping the $4.24 that analysts expected. But that included a 27-cent benefit from one-time items, largely a $3.2 billion gain on Microsoft's investment in Anthropic. Even excluding those items, the company said, it exceeded expectations across revenue, operating income and earnings per share. Microsoft 365 Copilot surpassed 30 million paid seats, up from 20 million last quarter. That's still less than 7% of the roughly 450 million commercial Microsoft 365 seats, a gap that has drawn investor skepticism all year. Windows OEM and Devices revenue declined 7%, better than the roughly 20% drop Microsoft had forecast for Windows OEM alone. The company said PC makers stocking up on parts ahead of rising memory prices helped offset weaker demand for computers. Xbox content and services revenue fell 10% and Xbox hardware fell 13%. Microsoft also wrote down the value of unspecified Xbox assets. The company grouped that charge with severance costs and savings from its retirement program -- a net $500 million hit to operating income -- and declined to say how much of it was Xbox or what was written down.

Microsoft Q4: Azure tops $100bn, AI bet mostly pays off

Microsoft's cloud growth reaccelerated in the fourth quarter, with Azure up 43% and full-year Azure revenue passing $100bn for the first time. The backlog jumped to $678bn, and demand is broadening beyond AI labs. But capital spending hit $35.8bn in the quarter alone, and a one-off Anthropic gain flattered the profit line. The verdict on Microsoft's AI spending: good, but not great. Microsoft went into its earnings facing one question: is the vast AI spending working? The numbers said yes, mostly. Revenue rose 18% to $90bn for the quarter to 30 June, and net income climbed 31% to $35.8bn, the company reported. Microsoft Cloud brought in $59.3bn, up 27%. The shares rose about 2% after hours. Azure reaccelerated The figure investors watch is Azure, and it beat. Azure and other cloud services grew 43% year on year, ahead of the 40% expected and up from 40% the quarter before, CNBC reported. For the full financial year, Azure passed $100bn in revenue for the first time. That acceleration matters because Microsoft has been short of computing power. It has been so stretched for capacity that it has had to ration chips between Azure customers, its own research, and Copilot. Growing 43% through that squeeze is the quarter's real signal. The backlog is broadening The demand is not only from AI labs. Microsoft's commercial backlog, the revenue it has booked but not yet recognised, jumped 84% year on year to $678bn. It said the quarter's sequential growth came from customers other than the big model developers. That matters because of concentration. Microsoft said in January that about 45% of the backlog then was tied to OpenAI. Signs of other customers signing up ease the worry that one partner underwrites the whole story. Paid seats for its Microsoft 365 Copilot assistant passed 30 million, up from 20 million in July. The bill keeps climbing The cost of that growth is not falling. Microsoft spent $35.8bn on property and equipment in the quarter alone, more than double the $17bn it spent a year earlier. For the full year, that capital spending reached about $116bn. Investors have been uneasy about exactly this. The stock is down 19% this year as the spending climbed, and rivals are pouring in similar sums. The relief in the small after-hours pop is that, for now, the revenue is keeping pace with the outlay. Good, but not great The profit jump needs an asterisk. Net income grew 31% on paper, but a one-off $3.2bn gain on Microsoft's stake in the AI lab Anthropic helped lift it. On the company's own measure that strips out its OpenAI investment swings, profit grew 22%. Costs also came in lower thanks to Microsoft's first voluntary retirement programme, partly offset by an Xbox writedown. So the read is mixed. AI cloud demand is clearly real and broadening, but the spending that fuels it keeps rising, and the build-out still needs paying for.

Microsoft Beats Wall Street Expectations With $90B in Revenue

Microsoft posted strong results for its quarterly earnings on Wednesday, beating expectations and showing strong growth in its cloud computing platform and a boost in paid AI users. The Redmond, Washington, company earned $90 billion, or $4.81 per share, in the April-June quarter. That is up 18% from the same period a year earlier. Analysts surveyed by FactSet Research had expected the company to earn $4.24 per share on revenue of $87.62 billion this quarter. Microsoft Cloud revenue was $59.3 billion this quarter, up 27% year-over-year. That growth reflects the demand across Microsoft's cloud computing platform Azure, as well as its first-party AI applications and services. Azure and other cloud services revenue increased 43%. For the full fiscal year, which closed out at the end of June, the company brought in $331.8 billion in revenue. "This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation," CEO Satya Nadella said in a statement Wednesday. Investors had been looking for evidence that Azure and Copilot, Microsoft's flagship AI assistant, could eventually produce returns as concerns about high AI spending had steadily grown across the industry. "We remain very confident in the long-term return on these investments, given these strong demand signals, the increasing product usage we've seen and the efficiencies that we're driving across the platform," said Danielle Criste, Microsoft's director of investor relations, in an interview. Microsoft's shares rose nearly 3% to $402.07 in after-hours trading after the results came out.

Microsoft shares surge 16% as AI cloud bet starts showing up in numbers

Microsoft shares surged 16% after stronger-than-expected guidance, robust Azure cloud growth and rising Microsoft 365 Copilot adoption eased concerns over AI spending. The company also forecast healthy cash generation, reinforcing investor confidence in its long-term artificial intelligence strategy and cloud leadership. Microsoft shares surged 16% after the company gave a stronger-than-expected outlook for sales and cloud growth, easing investor concerns that its heavy spending on artificial intelligence data centres may take too long to pay off. The Redmond-based company said it expects to keep generating cash through fiscal 2027 and gave a capital expenditure forecast below Wall Street estimates after changing how it accounts for long-term data centre leases. US MarketsPowered By As on 30 Jul 2026, 07:38 PM IST S&P 500 Top Gainers Lam Research301.59(19.51%) EMCOR Group800.32(19.01%) Baxter Intl28.94(16.81%) Western Digital535.59(15.92%) Gainers" S&P 500 Top Losers LKQ22.14(-16.10%) Fair Isaac1,175(-14.39%) C.H. Robinson Worldwide154.65(-10.99%) L3Harris Technologies265.49(-10.77%) Losers" The update was closely watched because Microsoft has been one of the biggest spenders in the global AI race. Investors have been asking whether the company can turn that spending into real growth without hurting cash flow. Its latest numbers gave them a stronger answer. Microsoft said revenue at Azure, its cloud-computing business, rose 43% in the fiscal fourth quarter. Analysts were expecting growth of 39.98%, according to Visible Alpha. "This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation," CEO Satya Nadella said. Azure stays in the AI race The Azure performance was the main driver of the stock reaction. Microsoft has been under pressure to show that its AI investments are helping cloud growth. The company has spent heavily on data centres, chips and computing capacity to meet demand from customers using AI tools. The 43% growth in Azure showed that demand remains strong. It also helped calm fears that Google Cloud's recent strong quarter meant Microsoft was losing ground. Also Read: AI Big Short? Why rising credit default swaps are spooking investors and how is it similar to 2008 housing crisis Google Cloud had reported an 82% jump in cloud revenue last week, raising questions about whether it was taking share from rivals. "It seemed kind of like Google was taking market share from everybody and they could catch up to the market share of Azure if they keep on that trajectory," said Dave Wagner, portfolio manager at Aptus Capital Advisors. "But what Azure is showing us is that it's staying right there in the race." Microsoft also reported contracted backlog of $678 billion in its cloud business at the end of the quarter, up from $627 billion in the previous quarter. The company said the entire sequential increase, about $50 billion in future sales, came from commitments by companies outside the leading US AI model makers. Copilot demand beats estimates Microsoft's AI push is also showing up in its productivity business. The company said Microsoft 365 Copilot had more than 30 million paid seats, up from 20 million last quarter. Analysts expected about 26.9 million paid seats, according to Reuters calculations based on estimates from Citi, Morgan Stanley, BNP Paribas and Wells Fargo. Microsoft's Office and productivity software business has long been one of its most reliable sources of profit. There had been concern that AI tools could disrupt this business or take time to generate meaningful revenue. The Copilot numbers suggest customers are paying for AI features inside Microsoft's existing software products.

Explained: Why Microsoft shares rallied 9% in extended trading after Q4 earnings despite AI worries

Microsoft shares surged nearly 9% in extended trading after the software giant reported stronger-than-expected Q4 earnings and Azure cloud growth. Robust AI-driven demand, upbeat guidance and lower-than-expected capital expenditure expectations reassured investors that Microsoft's heavy investments in artificial intelligence are beginning to deliver meaningful financial returns. Microsoft shares sharply rallied nearly 9% in extended trading hours on Wednesday after the tech giant's Q4 earnings beat expectations, despite global worries around hyperscalers increasing their already massive AI spending. In post-market hours on Wednesday, Microsoft said it expects to keep generating cash through fiscal 2027 and provided a capital expenditure estimate below Wall Street expectations following an accounting change for data centre leases. US MarketsPowered By As on 30 Jul 2026, 01:30 AM IST S&P 500 Top Gainers Garmin294.83(16.23%) GE HealthCare Techs71.90(12.15%) Cognizant Tech Solns55.97(11.25%) SBA Communications186.29(6.49%) Gainers" S&P 500 Top Losers Lennox Intl430.02(-20.97%) Masco72.56(-11.09%) KLA170.19(-10.80%) Micron Technology739.00(-9.94%) Losers" The company's sales and growth forecast for the ongoing fiscal first quarter also beat expectations, while topping Wall Street estimates for quarterly cloud revenue growth in its fiscal fourth quarter, which ended on June 30, 2026. Microsoft's Azure cloud-computing business reported a 43% rise in revenue in the fiscal fourth quarter, compared with analysts' consensus estimate of 39.98%, according to Visible Alpha, as reported by Reuters. Also read | Microsoft set for $190 billion market value swing after earnings results, options indicate Microsoft's massive AI spending bets finally paying off? Analysts took the earnings metrics as showing that Microsoft's massive AI spending bets were finally paying off, easing investor concerns. The company's CEO Satya Nadella during a conference call with analysts said the tech giant, which once relied on OpenAI for core AI models to power products like its Copilot assistant, is now designing its own models alongside its own chips and reaping efficiency gains of up to 40%. Nadella outlined a vision in which Microsoft and its customers would be free to pick and choose AI technologies based on their cost and performance needs. "That is really the enterprise design architecture ⁠that we are going to evangelize. We ourselves are using it," he said. Microsoft's earnings report follows Google Cloud's blockbuster quarter, with the rival posting an 82% surge in cloud revenue last week, far ahead of market expectations. Capital expenditures rose over 70% YoY to $41 billion during the April-June quarter, but fell slightly short of meeting market sentiment of $42.37 billion. Overall revenue for the quarter rose 18% YoY to $90 billion, beating estimates. Its per-share profit, excluding the impact from investments in OpenAI, was $4.74, beating expectations of $4.24. Also read | Microsoft's AI bet pays off as Azure, Cloud growth beat expectations This comes amid an overall caution around AI spending around the globe, leading to a massive selloff in South Korea's Kospi following a skyrocketing rally earlier this year. (With inputs from agencies) (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

Microsoft's AI bet pays off as Azure, Cloud growth beat expectations - Microsoft Delivers Strong Quarter

Microsoft's AI bet pays off as Azure, Cloud growth beat expectations 1/5 Microsoft Delivers Strong Quarter Microsoft topped Wall Street expectations for its fiscal fourth quarter, driven by robust Azure cloud growth and accelerating AI adoption. Revenue, earnings and guidance all exceeded forecasts, reassuring investors that its massive AI investments are beginning to generate meaningful returns. (Sources: Reuters, Barron's, The Wall Street Journal) 2/5 Azure Outpaces Estimates Azure revenue grew 43% year over year, beating analyst expectations, while Microsoft forecast 45% Azure growth for the current quarter. Strong enterprise demand for AI-powered cloud services helped Microsoft maintain its leadership in the cloud market despite intensifying competition. 3/5 AI Spending Starts Paying Off Despite committing around $175 billion in capital spending for 2026, Microsoft said its AI investments continue to generate healthy cash flows. The company also reported free cash flow above estimates, easing investor concerns over the heavy costs of expanding AI infrastructure. 4/5 Copilot Adoption Accelerates Microsoft said paid Microsoft 365 Copilot users have surpassed 30 million, highlighting growing enterprise adoption of its AI productivity tools. The rapid uptake strengthens confidence that AI software is becoming an important revenue driver alongside cloud services. 5/5 Shares Jump On Optimistic Outlook Microsoft projected first-quarter fiscal 2027 revenue above Wall Street expectations, supported by continued cloud momentum and AI demand. Investors welcomed the upbeat outlook, sending the stock sharply higher in after-hours trading following the earnings release.

Microsoft AI cash flow: Microsoft says cash will keep flowing from AI, shares rise

The company also forecast sales and cloud growth that beat expectations for its current fiscal first quarter, after it also topped Wall Street estimates for quarterly cloud revenue growth in its fiscal fourth quarter ended June 30. Microsoft on Wednesday said it expects to keep generating cash through its just-started fiscal 2027 and gave a capital expenditure forecast below Wall Street estimates after an accounting change for data center leases. The company also forecast sales and cloud growth that beat expectations for its current fiscal first quarter, after it also topped Wall Street estimates for quarterly cloud revenue growth in its fiscal fourth quarter ended June 30. All told, the metrics were a sign Microsoft's massive AI spending bets were paying off, easing investor concerns that one of tech's biggest cash generators was spending heavily in pursuit of profits that had yet to materialize. They also appeared to give investors confidence that Microsoft, which is facing a strong challenge from long-time rival Google in its cloud business, can hang ⁠on to ⁠its No. 2 position behind cloud leader Amazon.com. Shares of Redmond, Washington-based Microsoft were up more than 8% in extended trading after its forecast. Revenue at the company's Azure cloud-computing business rose 43% in its fiscal fourth quarter, compared with analysts' consensus estimate of 39.98%, according to Visible Alpha. On conference call with analysts, CEO Satya Nadella said the company, which once relied on ChatGPT creator OpenAI for core AI models to power products such as its Copilot assistant, is now carefully designing its own models alongside its own chips and reaping efficiency gains of up to 40%. Nadella outlined a vision in which Microsoft and its customers would be free to pick and choose AI technologies based on their cost and performance needs. "That's really the enterprise design architecture that we are going to evangelize. We ourselves are using it," Nadella said. Microsoft's report follows Google Cloud's blockbuster quarter, with the rival posting an 82% surge in ⁠cloud revenue last week, far ahead of market expectations. "It seemed kind of like Google was taking market share from everybody and they could catch up to the market share of Azure if they keep on that trajectory," said Dave Wagner, portfolio manager at Aptus Capital Advisors. "But what Azure is showing us is that it's ⁠staying right there in the race." SOLID FORECAST, PERFORMANCE Microsoft forecast a fiscal 2027 first-quarter sales range with a midpoint of $90.4 billion, above estimates of $89.66 billion, according to LSEG data. The company also forecast Azure growth of 45% on a constant currency basis, well above analyst estimates of 40.92%, according to data from Visible Alpha. Microsoft also said it would now spread long-term leases on data centers over 25 years rather than 15, which has the effect of lowering its annual reported capital expenditures. Microsoft said its spending plans remain unchanged and that it expects reported capital expenditures of $50 billion for the fiscal first quarter of 2027 and $175 billion for the 2026 calendar year. The first-quarter forecast was below analyst estimates of $56.02 billion, according to Visible Alpha data, and the calendar 2026 estimate was below Microsoft's own previous estimate of $190 billion. Microsoft's spending is part of $700 billion in unprecedented Big Tech outlays that have strained the companies' cash flows and stoked fears of capacity overbuild. Microsoft's free cash flow for the fiscal 2026 fourth quarter was $19.6 billion, above analyst estimates of $13.44 billion, according to Visible Alpha data, but down 23% from the previous year. Capital expenditures for the April-June quarter were $41 billion, up more than 70% from last year, and compared with market estimates of $42.37 billion. Microsoft reported $31.9 billion in capital spending in the prior three-month period. But much more ⁠spending could be coming. In a securities filing, Microsoft said it has data center leases of $329.1 billion that have not yet commenced, with leases starting between its fiscal year 2027 and fiscal year 2033. Microsoft said some of the leases are subject to certain contractual conditions being met before they begin. Microsoft reported contracted backlog of $678 billion in its cloud business at the end of the quarter, up from $627 billion in the prior quarter. It said all the sequential gains, or about $50 billion in future sales, were driven by commitments from companies outside the leading U.S. AI model makers. Its M365 Copilot paid seats totaled more than 30 million, compared with 20 million reported last quarter. Analysts on average were expecting 26.9 million Copilot seats, according to Reuters calculations based on estimates from Citi, Morgan Stanley, BNP Paribas and Wells Fargo. The company is among the worst performers in the so-called "Magnificent Seven" group of mega-caps with an 18% drop so far this year, trailing cloud rivals such as Alphabet. Overall revenue for the quarter rose 18% to $90 billion, beating estimates. Its per-share profit, excluding the impact from investments in OpenAI, was $4.74, beating expectations of $4.24.

Microsoft Beats Cloud Expectations on Azure and the AI Boom

Azure's Q4 revenue rose 43%, versus a 39.98% consensus, allowing Microsoft to top market expectations. The stock rose about 2% following the results. CEO Satya Nadella said Azure's annual revenue surpassed $100bn for the first time, while Microsoft 365 Copilot now has more than 30 million paid licenses. The performance comes as investors question the massive spending on AI infrastructure. Microsoft plans to invest $190bn in 2026, as Big Tech ramps up investment in data centers. The company is also pursuing a diversification strategy by reducing its reliance on OpenAI, including by integrating Anthropic models and developing its own AI technologies. Despite the stock being down 18% YTD, Microsoft is benefiting from sustained demand for its AI services. The company still faces capacity constraints affecting its cloud business, which are expected to persist through to the end of 2026. Several analysts nonetheless argue these concerns are overblown, pointing to investments underway to expand capacity, including through external partnerships such as the deal struck with French company Mistral.

Microsoft tops quarterly cloud growth estimates, easing spending concerns

July 29 (Reuters) - Microsoft topped Wall Street estimates for quarterly cloud revenue growth on Wednesday, a sign its massive spending on AI infrastructure was paying off as capacity constraints ease and more businesses adopt the technology. Revenue at the company's Azure cloud-computing business rose 43% in its fiscal fourth quarter, compared with analysts' consensus estimate of 39.98%, according to Visible Alpha. The strong growth could ease some concerns on Microsoft, which has been under pressure due to surging data center outlays and fears that AI tools could displace its long-reliable productivity software business. It follows Google Cloud's blockbuster quarter, with the rival posting an 82% surge in cloud revenue last week, far ahead of market expectations. Microsoft has forecast spending $190 billion this calendar year, part of the more than $700 billion in unprecedented Big Tech outlays that have strained the companies' cash flows and stoked fears of capacity overbuild. Meanwhile, the company is cutting dependence on OpenAI's technology by adding Anthropic's models into its offerings and developing in-house AI, while leaning on its deep business ties to boost adoption of the $30-a-month Copilot, including through deals such as the one with Accenture earlier this year. The company is among the worst performers in the so-called "Magnificent Seven" group of mega-caps with an 18% drop so far this year, trailing cloud rivals such as Alphabet. Microsoft has said its cloud growth is being held back by capacity constraints that it expects to persist at least through the end of 2026. That has forced the company to choose between powering its own AI services such as the Copilot 365 assistant and renting computing power to customers through Azure. Still, some analysts say the concerns around Microsoft are overblown, noting that AI demand remains strong and it has made efforts to ease constraints through deals beyond its own data-center build-out, such as a recent tie-up with France's Mistral. (Reporting by Deborah Sophia in Bengaluru; Editing by Sriraj Kalluvila)