Microsoft forecasts strong quarterly growth
Microsoft delivered a strong quarterly performance on Wednesday, surpassing Wall Street expectations and signaling continued momentum in its cloud computing business, Azure. The company’s upbeat forecast helped ease growing investor anxiety over the stability of AI demand amid economic uncertainty, sending Microsoft shares soaring by 7% in after-hours trading and setting the tech giant up to add over \$200 billion in market value.
For the fiscal third quarter ending March 31, revenue from Azure jumped 33% — ahead of analyst expectations of 29.7%, according to Visible Alpha. Notably, AI services accounted for 16 percentage points of Azure’s growth, up from 13 points in the previous quarter, as businesses increasingly embrace generative AI applications and infrastructure. Looking ahead, Microsoft projects cloud revenue growth between 34% and 35% for the fiscal fourth quarter, far surpassing market estimates. This would push cloud revenue to between \$28.75 billion and \$29.05 billion, reaffirming Azure’s status as a central pillar of Microsoft’s long-term growth strategy.
OpenAI Deal Fuels Commercial Momentum
One of the key drivers behind Azure’s robust bookings growth — up 18% in the quarter — was a new commercial contract with OpenAI, the company behind ChatGPT. While Microsoft declined to disclose specifics about the deal’s size or its exact contribution to Azure’s results, CFO Amy Hood noted that while AI played a role, the true outperformance came from Azure’s non-AI business segments.
“The only real upside we saw on the AI side of the business was that we were able to deliver supply early to a number of customers,” Hood explained in a post-earnings call, indicating that AI infrastructure demand remains ahead of available capacity.
Strategic Shift in Capital Spending
Microsoft reported a quarterly profit of \$3.46 per share, beating consensus estimates of \$3.22, on revenue of \$70.1 billion — a 13% year-over-year increase. The company’s Intelligent Cloud segment, which includes Azure, contributed \$26.8 billion to that total. Interestingly, Microsoft’s capital expenditures surged by 53% to \$21.4 billion in the quarter. However, the mix of that spending is shifting. The share of longer-lived infrastructure investments, like data center buildings, has fallen, while spending on shorter-lived assets, particularly chips and AI hardware, has risen.
Jonathan Neilson, Microsoft’s vice president of investor relations, explained the pivot: “You plug in CPUs and GPUs, and then you can start recognizing revenue.” This shift reflects a strategic emphasis on AI infrastructure to meet explosive demand, with hardware from Intel, AMD, and Nvidia playing a pivotal role.
Broader Implications for AI and the Economy
Microsoft’s aggressive AI infrastructure buildout — despite some recent canceled data center leases — underscores how integral generative AI has become to Big Tech’s future. A pullback in AI spending would ripple through suppliers like Nvidia and could even weigh on U.S. GDP growth. J.P. Morgan analysts previously estimated that AI-driven data center investments could contribute 10 to 20 basis points to U.S. economic growth in 2025-2026.
For now, Microsoft’s results — along with strong showings from Google and Meta — suggest that AI demand remains resilient, and tech’s AI arms race is far from over.
