Microsoft Corporation (MSFT.US) reports better-than-expected Q1 performance with a significant increase in data center spending, raising concerns about the "money-burning" AI business.

Microsoft Corporation (MSFT.US) released its first quarter report after the market closed on October 29th, with expenditure growth exceeding Wall Street expectations, leading to concerns in the market about the high cost of artificial intelligence infrastructure. After closing at $541.55 on Wednesday, Microsoft Corporation fell 3.7% in after-hours trading. As of the time of writing, the company's stock price has risen nearly 29% this year. The report showed that in the first quarter, Microsoft Corporation's total revenue increased by 18% to $77.7 billion, with earnings per share of $3.72. Analysts had previously expected revenue of $75.6 billion and earnings per share of $3.68. The company stated that capital expenditures in the first quarter, including leasing (which reflects data center expenditures), reached $34.9 billion, higher than the previous quarter's $24 billion. Microsoft Corporation CEO Satya Nadella said in a statement, "To seize the immense opportunities of the future, we will continue to increase our investment in artificial intelligence in terms of capital and talent." Looking at the business segments, the Intelligent Cloud division (including Azure) generated revenue of $30.9 billion, a 28% increase from the same period last year, surpassing the market average expectation of $30.25 billion. After adjusting for exchange rate fluctuations, Azure's cloud computing business revenue grew by 39% this quarter, exceeding Wall Street's expectation of 37%. Barclays PLC Sponsored ADR analyst Raimo Lenschow said that while this growth rate is "robust," it may be slightly lower than the more optimistic expectations of some investors. With the exception of one analyst, all others gave the stock a "buy" rating before the financial report was released. The cloud business remains the main driver of growth for Microsoft Corporation, which has been confirmed as a major beneficiary of the artificial intelligence boom. Last quarter, Microsoft Corporation revealed for the first time the dollar scale of its Azure cloud infrastructure business, stating that in fiscal year 2025, Azure and other cloud services revenue grew by 34% over the previous year, exceeding $75 billion. As the world's largest software manufacturer, Microsoft Corporation's cloud computing business is experiencing rapid growth, in part due to its landmark cooperation with leading artificial intelligence startup OpenAI. On Tuesday, the two companies revised their cooperation agreement, with Microsoft Corporation gaining the ability to use OpenAI's technology and its artificial intelligence reasoning business in the coming years. This updated agreement has been widely recognized on Wall Street. The department including business applications saw sales increase by 17% to $33 billion, above the analysts' average expectation of $32.3 billion. This department covers Office software and LinkedIn. Microsoft Corporation noted that average revenue per user increased as customers upgraded to higher-priced software packages with the latest artificial intelligence features (such as Copilot Assistant). The More Personal Computing division, which includes Windows operating system, search advertising, devices, and video game business, saw revenue increase by 4% to $13.8 billion, higher than the market's expectation of $12.83 billion. Microsoft Corporation stated in its financial report conference call that it expects second quarter revenue to range from $79.5 billion to $80.6 billion. According to London Stock Exchange Group (LSEG) data, the median in this range is $80.5 billion, higher than analysts' expectation of $79.95 billion. Microsoft Corporation's Investor Relations Director Jonathan Neilson stated in an interview that the sharp increase in capital expenditures is to meet customer demand, as the company is currently unable to fully meet this demand. Approximately half of the capital expenditures are used for short-term assets such as servers, with the other half used for long-term assets such as data center construction. Analyst Anurag Rana, when discussing the expenditures, said: "While this data may cause some concerns, we believe it indicates that the demand for artificial intelligence workloads is increasing." He pointed out that Azure's growth rate in this quarter was consistent with the previous quarter, likely due to data center capacity limitations.