Microsoft’s AI outlay has unsettled investors despite strong quarterly growth. The company’s results outperformed expectations, but soaring capital expenditure underscored the rising cost of cloud infrastructure and renewed questions about how soon artificial intelligence investments will deliver returns.
Microsoft’s latest earnings report revealed a sharp rise in AI-related spending alongside sustained cloud growth, prompting investor caution despite headline-beating results. The company’s fiscal first-quarter revenue reached $77.7 billion, up 18 per cent year-on-year, exceeding analyst expectations. Earnings per share came in at $3.72, also ahead of forecasts.
Azure, Microsoft’s cloud division, recorded around 40 per cent growth, a faster-than-expected acceleration that lifted group performance. Yet capital expenditure rose sharply to nearly $35 billion in the quarter — a 74 per cent increase on the same period last year — as the company expanded data-centre capacity and acquired additional high-end GPUs to meet demand for AI workloads.
Jonathan Neilson, Microsoft’s vice-president of investor relations, said the company was responding directly to the strength of that demand. “We continue to see demand which exceeds the capacity we have available. Our capital expenditure strategy remains unchanged in that we build against the demand signal we’re seeing,” he said.
Despite the upbeat figures, Microsoft’s shares fell more than three per cent in after-hours trading as investors weighed the pace of spending against margin prospects. Analysts noted that much of the capex relates to short-term hardware investments — particularly AI chips from suppliers such as Nvidia — to relieve near-term capacity constraints.
The company forecast next-quarter revenue between $79.5 billion and $80.6 billion, with expected Azure growth of about 37 per cent. That guidance suggests continued momentum in Microsoft’s cloud and AI operations, though at a more moderate pace than this quarter’s surge.
Across the sector, the pattern is similar. Alphabet and Meta have both raised annual spending forecasts to support AI infrastructure, drawing comparisons with the early-2000s data-centre build-out. Analysis by the Financial Times estimates that cumulative AI capital expenditure among the largest US technology companies could exceed $80 billion this year.
The parallel between opportunity and cost is now central to investor thinking. AI-related services are still in their early stages of monetisation, and the timeline for converting heavy infrastructure investment into free cash flow remains uncertain. While Microsoft’s scale advantage is clear, its spending profile has revived discussion about the long-term economics of AI and whether current investment levels are sustainable.
For UK and European markets, the implications extend beyond share performance. Microsoft’s infrastructure expansion is shaping global data-centre supply chains, energy consumption, and regulatory debate around data sovereignty. It also reinforces the concentration of AI compute capacity among a small group of hyperscalers, raising questions about competition and access.
Microsoft’s next quarterly update, due early in 2026, will offer clearer visibility on the balance between capital intensity and profit growth. Until then, investor sentiment appears evenly poised between optimism for AI’s potential and caution over its cost. The broader picture — as explored in Efficiency at what cost? The human toll of AI-era downsizing — is a reminder that technological progress measured in efficiency often carries a human price.
You must be logged in to post a comment.