Microsoft forced to up AI spending by $25 billion to cover hardware price rises

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Microsoft forced to up AI spending by billion to cover hardware price rises

Azure revenue is up 29%, but next quarter’s growth could rise 40%
Two-thirds of last quarter’s capex was dedicated to CPUs, GPUs
Microsoft 365 Copilot now has over 20 million paying customers

In its latest quarterly results, Microsoft has confirmed an 18% rise in revenue to $82.9 billion for the most recent three months, with Microsoft Cloud revenue up around 29% year-over-year to $54.5 billion and Azure growth standing at around 40%.

However despite heavy spend by customers in its products and services, the company hasn’t been immune from rising prices and global chip shortages, CFO Amy Hood explained.

Microsoft revenues climb, capex climbs further

Proof of continued growth comes in the form of a $627 billion commercial backlog, up around 99%, indicating huge forward demand for AI and cloud.

Consequentially, 2026 capex is expected to be around the $190 billion mark, but alarmingly, Microsoft is attributing around $25 billion of that to rising component costs. The company is also set to spend $40 billion on hardware and data centers in the next quarter, Hood revealed.

That’s a marked increase over last quarter’s $31.9 billion capex, two-thirds of which was destined for “short-lived assets” like CPUs and GPUs.

Speaking about the fiscal year capex projections, Hood said: “We remain confident in the return on these investments given higher demand signals and increasing product usage as well as the efficiencies we’re already driving across the platform.”

As for AI use, Microsoft declared “over 20 million Microsoft 365 Copilot paid seats” and noted considerable growth in major customers. It has has 4x as many customers with over 50,000 seats, compared with last year – Accenture represents the biggest customer, with over 740,000 seats.

Looking ahead, the company is targeting total revenue growth of 13-15% for the next period, but more importantly, around 39-40% in Azure revenue growth.