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Published : 30 Oct 2025, 10:15 AM
Microsoft's AI infrastructure spending to meet growing cloud services demand is outpacing Wall Street expectations, deepening investor fears about the costs of sustaining the boom.
The technology giant reported a record capital expenditure of nearly $35 billion for its fiscal first quarter on Wednesday and warned spending would rise this year, in a reversal of its earlier prediction that it would moderate.
Microsoft's shares fell nearly 4% in extended trading.
Alphabet and Meta Platforms also warned of higher spending as Big Tech works to overcome capacity bottlenecks that have hampered companies' ability to fully cash in on booming AI demand.
But the rising spending, as well as soaring valuations of tech companies and limited evidence of productivity gains for businesses adopting AI, has raised fears of a bubble reminiscent of the 1990s dot-com boom -- and collapse. Key Microsoft partner and ChatGPT creator OpenAI is also at the centre of a web of circular deals and has committed to buy more than $1 trillion in computing power with little detail on how it will fund that purchase.
CLOUD REVENUE JUMPS
For now, though, the outlay for Microsoft is paying off.
Microsoft's Azure cloud-computing business grew 40% in the July-September period, outpacing Visible Alpha's estimate of 38.4%. The company's current-quarter Azure growth forecast of 37% was also slightly ahead of estimates of 36.4%.
Chief Financial Officer Amy Hood told analysts on a call that growth could have been higher without the capacity constraints, which Microsoft expects will continue at least until the end of its current fiscal year, in June 2026.
Total revenue would be $79.5 billion to $80.6 billion in the current quarter, Microsoft said. Analysts polled by LSEG on average expected $79.95 billion.
"The capex number was a little bit worrisome," Bob Lang, chief options analyst at Explosive Options, said of the decline in Microsoft shares.
PROFIT BEAT
For the July-September quarter, Microsoft said total revenue rose 18% to $77.7 billion, beating expectations of $75.33 billion, according to data compiled by LSEG. Profit of $3.72 per share also beat expectations of $3.67.
The results were not affected by a revised deal with OpenAI that Microsoft announced earlier this week. The arrangement gave Microsoft a 27% stake worth about $135 billion, as well as a cut of sales and access to intellectual property, clearing up uncertainty about the collaboration with the company synonymous with the AI boom.
The partnership, which gives Microsoft exclusive access to the models behind ChatGPT, has been key to Azure's rapid growth in recent quarters and strengthened its challenge to top cloud provider Amazon.com. It is also crucial to Microsoft's other AI services, such as 365 Copilot for businesses.
That AI push has turned Microsoft into the world's second-most-valuable firm with a $4 trillion market value, trailing only chip maker Nvidia, which made history when it hit a $5 trillion valuation on Wednesday. Microsoft's stock, up nearly 30% this year, is among the best performers in the "Magnificent 7." The after-hours drop in its share price, however, threatened its $4 trillion valuation.
Some analysts have praised Microsoft's decision in recent months to let some OpenAI contracts go to Oracle, saying it shows discipline in steering limited AI capacity toward more profitable enterprise customers. The move is part of a broader strategy to lessen Microsoft's dependence on OpenAI by building its own models and partnering with other AI firms, including Anthropic.
"We have to balance third-party demand with our own first-party needs, fund our own R&D, and build model capability," CEO Satya Nadella said on the analyst call on Wednesday.
"Each time we say no to something (that doesn’t serve our long-term interest) I feel better."
