Microsoft AI Spending Surges as Cloud Growth Slows in Latest Earnings

During its quarterly results call, Microsoft revealed that it spent more than £25.6 billion ($34.9 billion) in capital expenditures in Q1, largely due to the global artificial intelligence (AI) infrastructure race among tech giants.

Microsoft’s spending rose 40% from the previous quarter, which, combined with slow growth in cloud revenues, led to a decline in investor confidence. The company suffered a sharp 10% drop in share value, bringing its market value to 256.4 billion ($350 billion), the largest decline since 2020.

Tech leaders insist that AI is still in its early days, with plenty of time to monetise applications. On a call with investors, Microsoft disclosed future contracted revenue to show that its increasing capital expenditure is supported by billions in long-term contracted customer demand. However, market reaction may indicate that investors are seeking a faster return on AI investments than they have in the past.

Keith Weiss, an analyst at Morgan Stanley, noted, “One of the core issues that is weighing on investors is cap ex is growing faster than we expected, and maybe Azure is growing a little bit slower than we expected.”

Microsoft CFO Amy Hood responded by pointing out that some cloud capacity built is not intended for customers but is used by internal teams for products, including Copilot. CEO Satya Nadella added that business customers have purchased more than 15 million Copilot subscriptions through M365, indicating a path to monetising AI spending.

Additionally, the company has been implementing AI capabilities into its products to enhance the value of its existing productivity software and cloud services. For example, last year, Microsoft unveiled its Security Copilot, an AI-enabled full-cycle security product. Security is now a major contributor to the company’s overall revenue, with nearly 1.5 million security customers in FY 2025.

Nadella added, “Acquiring an Azure customer is super important to us, but so is acquiring (one for) M365 or a GitHub or Dragon Copilot.”

“We don’t want to maximise just one business of ours,” Nadella said. “We want to be able to allocate capacity while we’re sort of supply constrained in a way that allows [us] to essentially build the best LTV [lifetime value] portfolio.”

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