Microsoft AI Spending Surges Amidst Cloud Growth, Investor Concerns
- tech360.tv
- Oct 30, 2025
- 3 min read
Microsoft's AI infrastructure spending is significantly outpacing Wall Street expectations, intensifying investor worries about the substantial costs of sustaining its booming cloud services. The technology giant reported a record capital expenditure of nearly USD 35 billion for its fiscal first quarter.
The company cautioned that spending would increase this year, reversing its earlier prediction of moderation. Microsoft shares fell nearly 4% in extended trading following the announcement.
Alphabet and Meta Platforms also indicated higher spending as major technology organisations work to overcome capacity bottlenecks. These constraints have hindered companies' ability to fully capitalise on booming AI demand.
However, the combination of rising spending, soaring valuations of tech companies, and limited evidence of productivity gains from AI adoption has raised fears. Some observers suggest a bubble reminiscent of the 1990s dot-com boom and subsequent collapse.
Key Microsoft partner and ChatGPT creator OpenAI is at the centre of a network of circular deals. OpenAI has committed to acquiring over USD 1 trillion in computing power, though details on how this purchase will be funded remain scarce.
For now, Microsoft's substantial outlays are yielding positive results. Its Azure cloud-computing business grew 40% in the July-Sept. period, exceeding Visible Alpha’s estimate of 38.4%.
Microsoft’s current-quarter Azure growth forecast of 37% also slightly surpassed estimates of 36.4%. Chief Financial Officer Amy Hood stated that growth could have been higher without existing capacity constraints.
Hood anticipates these constraints will persist until at least the end of its current fiscal year, in June 2026. Microsoft projects total revenue for the current quarter to be between USD 79.5 billion and USD 80.6 billion.
Analysts polled by LSEG, on average, expected USD 79.95 billion for the quarter. Bob Lang, chief options analyst at Explosive Options, called the capital expenditure number "a little bit worrisome" regarding the decline in Microsoft shares.
For the July-Sept. quarter, Microsoft reported total revenue increased 18% to USD 77.7 billion, surpassing LSEG's expectations of USD 75.33 billion. Profit of USD 3.72 per share also beat expectations of USD 3.67.
These results were not affected by a revised deal with OpenAI, which Microsoft announced earlier. The arrangement granted Microsoft a 27% stake valued at about USD 135 billion.
The deal also provides Microsoft with a share of sales and access to intellectual property, resolving uncertainties about its collaboration with the company synonymous with the AI boom.
This partnership, offering Microsoft exclusive access to the models behind ChatGPT, has been crucial to Azure's rapid growth in recent quarters. It has also strengthened Microsoft’s competition with top cloud provider Amazon.com.
The AI initiative is also vital for Microsoft's other AI services, such as 365 Copilot for businesses. This push has transformed Microsoft into the world’s second-most-valuable firm with a USD 4 trillion market value.
It trails only chip maker Nvidia, which made history when it hit a USD 5 trillion valuation on Wednesday. Microsoft’s stock, up nearly 30% this year, is among the best performers in the "Magnificent 7" group of companies.
However, the after-hours drop in its share price threatened its USD 4 trillion valuation. Some analysts have commended Microsoft's recent decision to allow some OpenAI contracts to go to Oracle.
They suggest this demonstrates discipline in directing limited AI capacity towards more profitable enterprise customers. This move is part of a broader strategy to reduce Microsoft's dependence on OpenAI.
Microsoft aims to achieve this by developing its own models and partnering with other AI firms, including Anthropic. Chief Executive Officer Satya Nadella commented on the strategy during an analyst call.
Nadella stated, "We have to balance third-party demand with our own first-party needs, fund our own R&D, and build model capability." He added, "Each time we say no to something (that doesn’t serve our long-term interest) I feel better."
Microsoft's AI infrastructure spending of nearly USD 35 billion is causing investor concerns.
The Azure cloud-computing business grew 40% in the July-Sept. period, exceeding estimates.
Capacity constraints are expected to continue until at least June 2026, impacting potential growth.
Source: REUTERS
