Microsoft's Cloud Business Grew 48% Last Quarter. So Did Its Spending, to $45 Billion

Microsoft's latest quarterly results beat expectations on almost every major number. Total revenue reached $92.3 billion, up 19% from a year earlier, while net profit came in at $36.6 billion, also ahead of forecasts. Azure, the company's cloud division, grew 48%, outpacing analyst estimates and helping push the stock up roughly 2.5% in after-hours trading.

The growth came with a matching jump in spending. Microsoft's capital expenditures reached $45.2 billion for the quarter, and the company now expects to spend more than $50 billion in the current quarter alone, putting full-year 2026 capital spending on pace for roughly $170 billion. Chief financial officer Amy Hood said demand for Microsoft's cloud and AI capacity still exceeds what the company can supply, and that delays in capacity deliveries from third-party partners have affected when some of that spending actually lands.

Looking ahead, Microsoft guided to revenue of between $96.0 billion and $97.1 billion for the next quarter, while warning that operating margins will likely dip slightly from a year earlier as the spending continues. The company said it expects free cash flow to turn positive again in fiscal 2027, an acknowledgment that the current pace of investment is weighing on cash generation in the meantime.

Microsoft's AI products are showing real usage growth behind the spending. The number of Copilot customers paying through usage-based billing credits grew more than 75%, and paid Copilot seats climbed to 30 million, up from 20 million previously.

Not every part of the business is growing, though. Xbox revenue fell 2%, with hardware sales down 14%, and revenue from Windows OEM and devices dropped 22%. Even as it ramps up AI spending, Microsoft is offering buyouts to roughly 60,000 employees, about 27% of its workforce. The company's spending also sits inside a much larger industry wave: hyperscale cloud providers are collectively expected to spend more than $700 billion on data centers in 2026 alone.