SAN FRANCISCO – Microsoft is spending more than ever on artificial intelligence, even as it offers buyouts to a quarter of its workforce. On Oct 28, the company showed how the gamble was paying off.
Microsoft said it spent US$45.2 billion (S$57.9 billion) on capital expenditures, which include data centres, in the three months that ended in September, up about 30% from $34.9 billion a year earlier. The company had told investors in July to expect more than US$50 billion spent on AI infrastructure.
Revenue was US$92.3 billion, up 19% from a year earlier. Profit was US$36.6 billion, up 32%. The results, which beat Wall Street’s expectations, were a stark counterpoint to disappointing financial results from Meta and Google’s parent company, Alphabet, two other technology giants that are investing heavily in AI. Microsoft’s shares were up more than 4% in after-hours trading.
Azure, the company’s cloud computing service, which lets businesses rent computing power, storage and AI tools, drove much of the growth.
Its sales increased 48% to US$33.2 billion, a figure Microsoft now reports every quarter after disclosing it only occasionally. Investors had been hoping for about 45%, analysts said, up from 43% the previous quarter.
On top of that, Microsoft said, it expects Azure to grow even faster, 49% to 50%, in the current quarter. Those figures are the clearest sign of whether Microsoft’s AI spending is translating into sales.
Satya Nadella, Microsoft’s CEO, said on a call with investors on Oct 28 that the company had added 24 data centres across five continents during the latest quarter because of increasing demand, he said. It added 31 data centres the quarter before that.
On Oct 26, the company offered buyouts to about 60,000 workers in the United States, Canada, Britain and India, roughly a quarter of its workforce of about 223,000. The company said only a sliver of those offered a buyout were expected to take it.
It was Microsoft’s second buyout offer in 2026. In July, Microsoft also eliminated 20% of its Xbox workforce as part of roughly 4,800 job cuts, and closed several game studios.
Microsoft’s stock fell earlier in 2026 as investors grew anxious about whether enough profit would be generated from the hundreds of billions of dollars that Microsoft and its peers are pouring into AI.
That worry was on display again last week when Meta raised the low end of its spending forecast for this year to US$135 billion and said its free cash flow – the cash left after paying for expenses and investments – had turned negative in the previous quarter.
Meta’s shares fell about 7% the next day. On Oct 28, Alphabet reported negative free cash flow of US$9.1 billion and a 25% decrease in profit. Its shares fell more than 10% in after-hours trading.
“I don’t think we’re out of patience,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “But I do think people are paying attention to it now, in a way that they haven’t been before.”
Microsoft has avoided those issues far. Its free cash flow was US$18.6 billion in the latest quarter, down 28% from a year earlier but still positive. Investors appear more worried about how the company is financing all the AI spending rather than about demand.
Amy Hood, Microsoft’s finance chief, said on a call with investors on Oct 28 that the company expected to “continue to remain free cash flow positive” in the 2027 fiscal year.
The company expects revenue of US$96 billion to US$97.1 billion in the current quarter, up 18% to 19% from a year ago. That would beat Wall Street’s expectations.
Capital expenditures for the calendar year should be about US$170 billion, down from the roughly US$175 billion she forecast in July, Hood said.
Some of the data centre capacity that Microsoft had arranged to rent from outside providers arrived late, pushing that spending into later months. The company expects more than US$50 billion in capital expenditures this quarter and spending to accelerate in the first half of next year, Hood said.
She also said Microsoft’s expense forecast for the current quarter included an estimate for the buyouts.
Microsoft has repeatedly said demand for its cloud services outpaces its available data centres. Its commercial backlog, or contracted future sales, was US$677 billion, down slightly from US$678 billion the previous quarter. Hood said the dip was smaller than usual for this time of year because of a large Azure contract.
Nadella said he wanted Microsoft’s growth to come from a broad range of business customers, “as opposed to, like, four customers who buy a lot of capacity from you.” He added, “That’s not a business, as far as I’m concerned.”
Still, OpenAI accounted for about 11% of Microsoft’s revenue in the quarter. Microsoft’s relationship with OpenAI, the San Francisco company behind ChatGPT, was overhauled in late 2025 when the startup converted into a for-profit entity and Microsoft took a stake valued at roughly US$135 billion. Under the revised agreement, Microsoft retained access to OpenAI’s technology through 2032.
The New York Times has sued OpenAI and Microsoft, claiming copyright infringement of news content related to AI systems. The companies have denied the claims.
Microsoft reported results under new business groupings for the first time, a reshuffling that the company said put AI at the forefront.
Sales in its Agents and Infra segment, which combines the Azure cloud business with business software such as Excel, Teams and Copilot, rose 24% to $76.8 billion, from $61.7 billion a year earlier. Devices and Consumer, home to Windows and Xbox, had $15.5 billion in sales, down 3% from $16 billion. THE NEW YORK TIMES
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This article originally appeared in The New York Times.
