Microsoft's AI investments are paying off, with Azure spending hitting a record high of $30 billion in Q1 and shares surging over 9% after hours

Microsoft's AI investments are paying off, with Azure spending hitting a record high of $30 billion in Q1 and shares surging over 9% after hours

Microsoft announced on the 30th that capital expenditures for the first quarter of its fiscal year will reach a record $30 billion, driven primarily by strong sales of its Azure cloud computing business, demonstrating that its substantial investments in artificial intelligence ( AI ) are yielding growing returns. Azure cloud computing revenue surpassed $75 billion for the first time, exceeding market expectations of $74.62 billion. This demonstrates that its significant investments in AI are gradually paying off. The news sent Microsoft's stock price up 9% after hours, pushing the company's market capitalization past $4 trillion.

Microsoft's fiscal fourth-quarter results were boosted by strong cloud computing revenue, with both revenue and profit exceeding analysts' expectations.

"Cloud computing and artificial intelligence (AI) are driving business transformation across industries," Microsoft CEO Satya Nadella said in a statement accompanying the earnings report. "We are innovating across our entire technology stack to help customers adapt and thrive in this new era. Azure revenue exceeded $75 billion this year, up 34%, driven by growth across all workloads."

Microsoft reported adjusted earnings per share (EPS) of $3.65 on revenue of $76.4 billion for the quarter. Wall Street had expected adjusted EPS of $3.37 on revenue of $73.89 billion. In the same period last year, Microsoft reported adjusted EPS of $2.95 on revenue of $64.72 billion.

The intelligent cloud division, including the Azure business, had the highest revenue of 29.8 billion yuan, while analysts had previously expected 29.09 billion yuan.

The Windows maker's earnings report came a week after Google reported better-than-expected second-quarter results, boosted by strong cloud revenue growth, which boosted its stock price. The company also said it would invest an additional 10 billion yuan in AI, bringing its full-year investment to 85 billion yuan from 75 billion yuan.

Despite Microsoft's solid growth, Wedbush Securities analyst Dan Ives wrote in a recent investor note that the company's AI investments will really take off in fiscal 2026. "Even if AI adoption picks up significantly in fiscal 2025, it's clear that fiscal 2026 will be the true inflection point for AI growth for Microsoft as CIOs prepare behind the scenes at Microsoft."

Meanwhile, Brad Sills of Bank of America Global Research said Microsoft's AI-based Copilot software could be its next growth catalyst.

Microsoft became a leader in AI thanks to its early investment in ChatGPT creator OpenAI , but the two companies have disagreed over OpenAI's plans to transform its for-profit arm into a public-benefit organization and how much equity Microsoft would receive in the new business.

Without Microsoft, OpenAI could lose $20 billion in investment, hurting its future growth prospects.