Microsoft (MSFT.US) released its first fiscal quarter report after the market closed on October 29, Eastern Time. The announced expenditure increase exceeded Wall Street expectations, triggering market concerns about the high cost of artificial intelligence infrastructure. After closing at $541.55 on Wednesday, Microsoft was down 3.7% in after-hours trading as of press time. As of Wednesday's close, the company's stock price has risen nearly 29% this year.
The report shows that in the first fiscal quarter, Microsoft's total revenue increased by 18% to US$77.7 billion; earnings per share were US$3.72. Analysts on average had expected revenue of $75.6 billion and earnings per share of $3.68.
The company said first-quarter capital expenditures, including leasing, which reflects data center spending, hit $34.9 billion, up from $24 billion in the previous quarter.
Microsoft CEO Satya Nadella said in a statement: "To seize the huge opportunities ahead, we will continue to increase investment in artificial intelligence in both capital and talent."
In terms of business, the revenue of the intelligent cloud department (including Azure) reached US$30.9 billion, an increase of 28% from the same period last year, higher than the average market expectation of US$30.25 billion. Azure competes with Amazon Web Services (Amazon Web Services) and Google Cloud (Google Cloud). After adjusting for currency fluctuations, Azure cloud computing business revenue increased 39% in the quarter, exceeding Wall Street's forecast of 37%.
Raimo Lenschow, an analyst at Barclays, said that while the growth rate was "solid," it could be slightly below the more optimistic expectations of some investors. All but one of the analysts gave the stock a "buy" rating before the earnings release.
The cloud business remains the main driver of Microsoft's growth and has proven to be a major beneficiary of the artificial intelligence boom. Last quarter, Microsoft disclosed the dollar size of its Azure cloud infrastructure business for the first time, saying that revenue from Azure and other cloud services increased 34% in fiscal 2025 from the previous year, exceeding $75 billion.
As the world's largest software maker, Microsoft's cloud computing business has achieved rapid growth, thanks in part to its landmark cooperation with leading artificial intelligence startup OpenAI. On Tuesday, the two companies revised their cooperation agreement, which will give Microsoft access to OpenAI's technology and its artificial intelligence reasoning business in the coming years. The updated agreement was widely approved by Wall Street.
Sales in the segment that includes commercial applications rose 17% to $33 billion, above analysts' average estimate of $32.3 billion. This division covers Office and LinkedIn. Microsoft said revenue per user increased as customers upgraded to higher-priced software packages that include the latest artificial intelligence features, such as Copilot Assistant.
Revenue in the More Personal Computing unit, which includes Windows systems, search advertising, devices and video games businesses, rose 4% to $13.8 billion, topping market expectations of $12.83 billion.
Microsoft said in an earnings call that it expects fiscal second-quarter revenue to be between $79.5 billion and $80.6 billion. The midpoint of that range was $80.05 billion, higher than analysts' expectations of $79.95 billion, according to London Stock Exchange Group (LSEG) data.
Jonathan Neilson, Microsoft's director of investor relations, said in an interview that the surge in capital spending was in response to customer demand that the company still cannot fully meet. About half of capital expenditures are for short-term assets such as servers, and the other half are for long-term assets such as physical construction of data centers.
"While this data may cause concern for some, we believe it indicates that demand for artificial intelligence workloads is rising," analyst Anurag Rana said of the spending. He noted that Azure's growth rate this quarter was the same as the previous quarter, most likely due to data center capacity constraints.