Microsoft’s Profit Soars 60% as A.I. Spending Surges, but Investor
Concerns Drag Shares
The company said on Wednesday that revenue
in the most recent quarter was $81.3 billion, but its share price dropped more than
7 percent in after-hours trading.
·
Microsoft reported quarterly revenue of $81.3 billion, up 17% year-on-year, while profits jumped 60% to $38.5
billion, beating Wall Street expectations.
·
Despite strong results, Microsoft shares fell over
7% in after-hours trading, reflecting investor anxiety over heavy spending
and long-term returns.
·
The company spent $37.5 billion on capital expenditures in the quarter, mainly
for A.I. data centers, a 65% increase from a year earlier.
·
Azure revenue rose 39%, slightly ahead of expectations, reinforcing
its role as a key indicator of Microsoft’s A.I. momentum.
·
CEO Satya Nadella said Microsoft is still in the early stages
of A.I. adoption, but its A.I. business is already larger than some of the company’s
major legacy franchises.
·
Investors remain concerned that A.I. growth is not accelerating
fast enough to justify the massive infrastructure outlays.
·
CFO Amy Hood said A.I. infrastructure spending will continue as customer demand exceeds
supply, though capital expenditure is expected to dip in the current
quarter.
·
Microsoft’s A.I. business remains closely tied to OpenAI, which is transitioning
to a for-profit structure; Microsoft is expected to hold a roughly $135 billion stake.
·
Under the revised arrangement, OpenAI committed to buying
$250 billion worth of computing power from Microsoft, boosting Microsoft’s long-term
cloud demand.
·
Microsoft said its investment in OpenAI contributed to profits during the quarter.
·
Analysts questioned Microsoft’s ability to cover long-term
data center costs and its dependence on OpenAI,
which accounts for 45% of outstanding commercial contracts.
·
Microsoft said existing contracts already cover most of the
costs of expensive A.I. chips and that its customer base is more diversified than
peers.
·
A.I. capacity constraints are expected to persist through fiscal
2026, with Microsoft planning to expand total A.I. capacity
by over 80% in the next two years.
·
The personal computing segment reported $14.3 billion in revenue, down 3%, hurt by weakness in gaming.
·
Laptop sales rose slightly due to pre-buying ahead of rising
memory (RAM) prices, but Microsoft warned that memory shortages could add volatility
to the segment.
Microsoft
said on Wednesday (28.01.2026) that it continued to spend heavily on data centers for artificial intelligence with $37.5 billion in capital
expenditures in its most recent quarter, up about 65 percent from the same period
a year ago.
The
company reported that revenue in the quarter was $81.3 billion, up 17 percent from
the same period last year. Microsoft’s profits were $38.5 billion, up 60 percent
from last year. Both numbers beat Wall Street’s expectations.
Microsoft’s
Azure business, a closely watched segment that is indicative of the traction of
its A.I. business, was up 39 percent. That also slightly beat Wall Street expectations.
“We
are only at the beginning phases of A.I. diffusion and already Microsoft has built
an A.I. business that is larger than some of our biggest franchises,” Satya Nadella,
Microsoft’s chief executive, said in a statement.
But
investors remain concerned about the huge sums Microsoft is investing in data centers, while the growth of its A.I. business did not show
big gains. . Shares of Microsoft were down as much as 7
percent in after-hours trading on Wednesday.
Amy
Hood, Microsoft’s finance chief, told analysts Wednesday that the company would
continue to spend on A.I. infrastructure as “our customer demand continues to exceed
our supply.”
Microsoft’s
spending on A.I. infrastructure has ratcheted up each quarter in recent years. Ms.
Hood said that while the company will continue its spending to meet A.I demand,
it expects capital expenditures to decline in the current quarter from the preceding
one.
For
the past few years, Microsoft’s A.I. business has been closely tied to OpenAI, the
San Francisco company behind ChatGPT.
In
October, OpenAI laid out its plans to transition to a for-profit corporate structure,
which required changes in its existing relationship with its largest investor, Microsoft.
Under the new arrangement, Microsoft is expected get a roughly $135 billion stake
in OpenAI and unfettered access to its technology, and OpenAI committed to buying
$250 billion in computing power from Microsoft.
Microsoft’s
profits got a boost from its investment in OpenAI during the quarter, according
to the company’s financial filing.
Analysts
pressed Microsoft’s executives on how the company will make enough to cover the
enormous long-term costs of its building boom, and whether it was too dependent
on OpenAI, which accounted for 45 percent of the company’s outstanding commercial
contracts. Ms. Hood said contracts already covered nearly all of the costs of the
pricey chips that power A.I., and said Microsoft’s customer base was more diverse
than its peers.
Microsoft
continues to spend billions on building out its data center
capacity as the demand for A.I. computing power outweighs its available supply.
Microsoft said these capacity constraints would persist through fiscal year 2026.
Mr.
Nadella said during last quarter’s earnings call that Microsoft planned to increase
its total A.I. capacity by more than 80 percent over the next two years.
Microsoft’s
personal computing business, which includes video game hardware like Xbox consoles
and laptops, reported $14.3 billion revenue, down about 3 percent because of declines
in the gaming business.
Part
of that segment, which includes laptops, grew 1 percent “with increased purchasing
ahead of memory price increases,” Ms. Hood said. Industry analysts have reported
that the price for computer memory, or RAM, has been increasing amid shortages and
higher demand from A.I. data centers. These price increases
“could create additional volatility” in Microsoft’s personal computing business,
Ms. Hood said.