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Microsoft posted better than expected quarterly earnings on Wednesday, as its cloud division reported robust sales growth on strong demand from artificial intelligence-related services, calming fears of a slowdown.
Revenue rose 13 per cent in the quarter to the end of March from the same period in the previous year to $70.1bn. Net income increased 18 per cent to $25.8bn. Both figures exceeded the average estimate in an S&P Visible Alpha survey.
Microsoft shares jumped as much as 9 per cent in after-hours trading in New York, adding about $260bn in market value. The shares had fallen by 6 per cent since the end of 2024 as investors weighed the impact of US President Donald Trump’s tariffs on global supply chains and American economic growth.
Revenue from cloud computing services rose 20 per cent from a year ago to $42.4bn, broadly in line with expectations. The unit that houses its Azure cloud platform had missed expectations in the previous quarter, causing the shares to sell off.
“The main focus was on Azure growth” that “significantly beat muted expectations”, said Barclays analyst Raimo Lenschow. “The big improvement in AI contribution shows the high potential for AI once [more] capacity becomes available.”
Microsoft’s capital expenditure — spending on equipment and other major investments — was $21.4bn in the quarter, up from $14bn in the same period a year earlier.
Chief executive Satya Nadella told investors on Wednesday that reports that it had cancelled commitments for new US data centre leases were not evidence that it had pulled back on spending in response to softening AI demand. Nadella pointed out that Microsoft opened data centres in 10 countries in its most recent quarter.
“I feel very, very good about the pace” of expansion, Nadella said, adding that some of the cancellations were to ensure that the company was not caught “upside down” by overbuilding in one area of the world as demand increased elsewhere.
In an interview with the Financial Times this week, Microsoft president Brad Smith pledged to spend “tens of billions of dollars” a year on European data centres to protect customers’ access to their data and computing power. The move is intended to reassure the region that Trump will not be able to cut off access to the critical technology.
Amy Hood, Microsoft’s chief financial officer, reiterated her forecast for $80bn in capex for the full year ending June 30. She noted it would increase next year, but at a lower rate than 2025. Hood added that data centre demand continued to outstrip supply.
Big Tech peers Google and Meta have similarly stood by or increased their spending plans in the face of investor scepticism and a deteriorating economic outlook. On Wednesday, Meta said it could spend as much as $72bn on capex this year, up from a prior forecast for $65bn, as it seeks to become a leader in AI and as infrastructure hardware gets more expensive.
Yet the software giant’s evolving relationship with start-up OpenAI, which it has backed with $13bn in investment, has raised doubts about whether it will adjust its pace of development.
Microsoft in January said it would change the structure of its deal with OpenAI to enable the company led by Sam Altman to use rivals’ cloud computing services. It retains right of first refusal.
The move coincided with the start-up announcing with cloud provider Oracle and Japan’s SoftBank that it would build at least $100bn of AI infrastructure in the US in a project dubbed Stargate.
Microsoft still retains a sizeable financial interest in OpenAI and is in talks to convert a share of future profits into equity.