Microsoft boosts AI spending as profit jumps 31%

Microsoft’s AI spending continues to grow, but unlike other big tech companies, it appears to have an answer to concerns that the returns don’t justify the costs.

On Wednesday, Microsoft said it spent $41 billion on capital expenditures, including data centers, in the three months that ended in June, up 69 percent from a year earlier. Microsoft also said its spending reached $145.3 billion in fiscal 2026, which also ended in June.

At the same time, Microsoft’s profit for the quarter amounted to $35.8 billion, which is an increase of 31 percent. Revenues reached $90 billion, an increase of 18 percent.

Revenue at Azure, the enterprise cloud computing service that allows businesses to rent computing power, storage and AI tools, led the big growth, rising 43 percent. Analysts had expected growth of about 40 percent, the same as in the previous quarter. Investors are watching the number as the clearest indication yet of whether Microsoft’s AI spending is translating into revenue.

Azure’s fiscal year revenue topped $100 billion for the first time, “reflecting the trust customers place in us to support their AI transformation,” Microsoft chief executive Satya Nadella said in a statement.

The company’s results beat Wall Street projections of $87.6 billion in revenue and $31.5 billion in profit, sending Microsoft shares up more than 7 percent in after-hours trading on Wednesday.

These strong results may offer comfort to investors worried about Microsoft’s plans for further AI spending.

The company expects to spend about $175 billion on AI infrastructure in calendar year 2026 and more than $50 billion in the current quarter, Amy Hood, Microsoft’s chief financial officer, said on Wednesday’s earnings call. The company expects revenue for the quarter to be between $89.85 billion and $90.95 billion.

The company said demand for its cloud computing services is outstripping its available data centers, requiring more expansion spending. Microsoft added 31 data centers in the quarter, bringing the total to 88 new data centers this year, Mr. Nadella said.

The real test, some investors said, is whether demand continues to match Microsoft’s spending. Commercial backlog — contracted future sales — rose to $678 billion, up 8 percent from the previous quarter.

All of the $51 billion increase came from customers other than frontier AI labs like OpenAI, Ms. Hood said.

Microsoft’s shares have fallen since January as investors became concerned about whether the hundreds of billions of dollars he and his colleagues are pouring into AI development will translate into profit.

That anxiety manifested itself just last week. Alphabet, the parent company of Google, said it quadrupled its quarterly profit to $112 billion, boosted mainly by big investments in other artificial intelligence companies, and raised its expected spending in 2026 to a range of $195 billion to $205 billion. Its shares fell about 7 percent the day after the earnings announcement.

“The market really extended Big Tech’s license to spend on AI, and that was based on the belief that these companies would get a significant return on their investment,” said Bryan Hayes, an analyst at Zacks Investment Research. “That patience is now conditional.

Much of the demand that fills these data centers comes from OpenAI. Microsoft’s relationship with the San Francisco company behind ChatGPT was overhauled late last year, when the start-up was turned into a profitable entity and Microsoft acquired a stake worth about $135 billion. Under the revised contract, Microsoft retained access to OpenAI technology until 2032.

Revenue rose 14 percent to $37.8 billion for commercial subscriptions to Microsoft’s productivity tools for businesses, which include Excel, Teams and Word, as well as its AI assistant Copilot. The company said more than 30 million people pay for Copilot, up from more than 20 million a quarter earlier. Microsoft’s PC division had revenue of $12.9 billion, a 4 percent decline that the company attributed to weaker demand for PCs and higher component costs.

Microsoft is cutting back on its other businesses to help pay for its AI push. In July, the company eliminated 20 percent of its Xbox workforce in roughly 4,800 job cuts and shut down several game studios. Xbox accounted for about 6 percent of Microsoft’s revenue in fiscal 2026, down from about 8 percent a year earlier. Xbox revenue also fell 10 percent in the quarter.

(The New York Times has sued OpenAI and Microsoft, alleging copyright infringement of news content related to AI systems. The companies have denied the claims.)