Microsoft delivered a solid earnings report on Wednesday. The company posted $81.3 billion in revenue for the quarter, a 17% increase. Net income reached $38.3 billion, up 21%, and Microsoft cloud revenue broke a record by surpassing $50 billion. Despite these strong results, the stock faced pressure on Thursday. Investors expressed concern over the tech giant’s massive spending to build out its cloud infrastructure and questioned whether that investment would ultimately pay off.
Microsoft CEO Satya Nadella addressed those concerns directly during the earnings call, insisting the answer is yes. The company’s spending has been enormous. Microsoft spent $88.2 billion on capital expenditures last fiscal year. In just the first half of the current fiscal year, it has already spent $72.4 billion. A significant portion of this investment is directed toward serving AI to enterprises and major AI labs, including OpenAI and Anthropic.
The central question for investors is whether this spending will translate into increased usage and profits. There are fears, particularly as growth in Microsoft’s main enterprise cloud product, Azure, and its Microsoft 365 apps did not meet some investor expectations. Wall Street analyst Karl Keirstead of UBS noted that the slight shortfall in both Azure and M365 segments was a key negative talking point, though he remains unconcerned and recommends buying the stock.
These concerns are amplified by previous reports suggesting limited user interest in Microsoft’s AI products, despite Copilot being integrated across its ecosystem. During the call, Nadella focused on promoting AI adoption. He shared that daily users of its consumer Copilot AI products grew nearly threefold year-over-year, though he did not provide specific user numbers for these services, which include AI chats, search, and OS integrations.
He offered more concrete figures for other AI products. GitHub Copilot now has 4.7 million paid subscribers, a 75% year-over-year increase. Microsoft 365 Copilot has reached 15 million paid seats sold to companies, from a total base of 450 million paid seats. Nadella also highlighted Dragon Copilot, a healthcare AI agent, which is now available to 100,000 medical providers and was used to document 21 million patient encounters last quarter, a threefold increase.
The ultimate test is whether the billions spent on data centers will be worthwhile. Nadella and CFO Amy Hood argued that demand for AI services across their products far exceeds current data center supply. They stated that all the new equipment is essentially booked to capacity for its expected lifespan, suggesting the investment is already justified by overwhelming demand.