Microsoft Set to Spend Record $30 Billion This Quarter Amid Booming AI Returns

Microsoft (MSFT.O) has projected a record $30 billion in capital expenditure for the first quarter of its current fiscal year, marking its largest quarterly investment ever. This aggressive spending aligns with surging demand in its Azure cloud computing services and the growing returns from artificial intelligence (AI) investments, especially as AI technologies become more deeply integrated into enterprise solutions.

The company revealed for the first time that Azure’s annual sales exceeded $75 billion, surpassing market expectations of $74.62 billion. The announcement pushed Microsoft’s shares up by 9% in after-hours trading. This robust growth highlights the payoff from Microsoft’s multi-billion-dollar bet on AI, particularly its partnership with OpenAI, and the roll-out of AI-driven tools like M365 Copilot, which now boasts over 100 million monthly active users.

Microsoft’s capital spending plan surpasses analysts’ predictions of $23.75 billion and signals its intent to outspend competitors like Google and Meta in the data center race. Both Google and Meta have also committed to increased spending on infrastructure to support AI services, but Microsoft's forecast places it at the forefront of this investment wave. Combined, these companies are expected to contribute to a $330 billion capital expenditure in 2024, mainly focused on AI infrastructure.

While Microsoft’s cloud business still trails Amazon Web Services (AWS) — which recorded $107.56 billion in its last fiscal year — investors are now more confident that Microsoft’s AI and cloud strategy is yielding tangible revenue results. Azure’s revenue rose 39% in the June quarter, well above analyst estimates of 34.75%. For the upcoming quarter, Microsoft projects 37% growth, again beating average expectations of 33.5%, as per Visible Alpha data.

Spending is also being redirected towards longer-lived assets, such as data centers, rather than short-term assets like chips. Microsoft noted this shift in investment strategy was necessary to meet growing AI demand and alleviate supply constraints.

In terms of revenue, Microsoft reported an 18% year-over-year increase, with total revenue reaching $76.4 billion in the April–June period (Q4), outperforming the forecast of $73.81 billion. This strong performance, along with Meta’s positive results, contributed to a $500 billion boost in AI-related tech stocks.

Despite the growth, concerns have emerged over Microsoft’s dependence on OpenAI. As both parties renegotiate their agreement, tensions have surfaced around Microsoft’s access to OpenAI technology and its stake in the company, particularly if OpenAI becomes a public-benefit corporation. Reports indicate a deadlock over these issues. In response, Microsoft is diversifying its AI model ecosystem by partnering with xAI, Meta, and France’s Mistral to host their AI models on Azure, thus reducing overreliance on OpenAI.

Looking forward, Microsoft is close to becoming the second company to reach a $4 trillion valuation, with its stock rising nearly 20% in 2024. According to executives and investors, the company’s focused execution, even under high expectations and a challenging environment, has cemented its leadership in the AI and cloud space.