Necessary Always Active
Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.
|
||||||
|
||||||
|
||||||
|
Published on
October 30, 2025
5 min read
Microsoft’s Cloud Revenue Surges 40% as Capital Spending Exceeds Investor Expectations
In Focus
- Microsoft’s cloud revenue rose 40% in Q1 2026
- Total revenue for the quarter amounted to $77.7 billion
- Software giant reported $3.72 in earnings per share
Microsoft’s cloud revenue surged 40% in the July-September quarter, surpassing analysts’ forecast of 38.4%. According to Reuters, the company has projected 37% growth in its Azure business in the current quarter. This was slightly higher than analyst estimates of 36.4%.
What Drove Microsoft Cloud Revenue Growth in 2025?
According to Chief Financial Officer Amy Hood, Microsoft’s Azure growth in 2025 could have been higher were it not for cloud capacity constraints.
Earlier this month, Microsoft forecasted that its data center crunch would persist until June 2026. The software giant reported $77.7 billion in total revenue, surpassing analyst projections of $75.33 billion.
The company reported $3.72 in earnings per share, which is slightly higher than the expected $3.67. Share prices dropped by close to 4%. Microsoft’s quarterly earnings were not affected by its restructured deal with OpenAI. Under the new deal, Microsoft gets a 27% stake in OpenAI Group Corporation, which is equivalent to $135 billion.
Microsoft CEO Satya Nadella said that initially, the company’s founder Bill Gates was cautious about investing in OpenAI back in 2019. The partnership became key in driving Azure cloud growth, and central to the provision of other AI services including Microsoft’s 365 Copilot for enterprises.
Riding the AI Boom
The AI boom had pushed Microsoft into the second most valuable company in the world. With a market capitalization of $4 trillion, the software giant now trails NVIDIA whose valuation hit $5 trillion on October 29, 2025.
Microsoft has allowed OpenAI cloud provider contracts to shift to Oracle as part of a long-term strategy to reduce dependence on the AI startup, build its own models, and partner with other AI companies like Anthropic.
In his statement on cloud growth, Satya Nadella emphasized that Microsoft has to “balance third-party demand with our own first-party needs, fund our own R&D, and build model capability.”
Microsoft’s Cloud Revenue Surge at a Glance
- Capital spending for Q1 stood at $35 billion
- Software giant projects 37% growth in Azure business
- Microsoft stock dropped by nearly 4%
Microsoft’s Capital Spending Exceeds Estimates
Microsoft’s AI infrastructure spending analysis shows that the company has surpassed investor expectations and deepened fears about sustainability of the AI boom. The tech giant reported $35 billion in capital spending in the first quarter.
Microsoft plans to increase capital spending this year to meet growing demand for cloud computing. The company has been facing storage issues in data center regions across the U.S and has restricted new sign-ups for Azure cloud servers in major data center locations until mid-2026.
Tech giants Meta Platforms and Alphabet also plan to increase AI capital spending as they seek to overcome cloud capacity challenges that limit their ability to cash in on the AI boom.
