Microsoft announced on Wednesday that it expects sales for its Azure cloud business to beat Wall Street predictions. The software giant also revealed plans to spend a massive $190 billion in capital in 2026, which is also more than expected.
After this forecast, Microsoft’s shares stayed steady, recovering from a more than 2% drop in after-hours trading. This initial dip happened when quarterly results showed only a small increase in cloud revenue growth. In contrast, rival Google reported a stronger rise in cloud growth, and Alphabet shares jumped over 4% after hours.
The competition among big tech companies for AI dominance is getting more intense. Investors are rewarding companies that show impressive growth. Some investors are increasingly worried that Microsoft’s reliance on partners like OpenAI might not guarantee it a competitive edge anymore. Many also fear that Microsoft’s large business customers have been slow to adopt its Copilot 365 assistant.
Microsoft said it expects revenue for its Azure and other cloud services to grow between 39% and 40% (after accounting for currency changes) in the fiscal fourth quarter. This would beat Visible Alpha’s estimate of 36.7% growth. Revenue in this unit rose 40% in the fiscal third quarter. This was faster than the 39% growth in the previous three months, but it matched what analysts generally expected.
In comparison, Google Cloud, a smaller competitor, saw a 63% rise in revenue. This significantly surpassed estimates of 50.1% growth, though analysts believe Google Cloud started from a smaller sales base. Microsoft predicted its total fiscal fourth-quarter revenue would be between $86.7 billion and $87.8 billion, which is mostly in line with an average LSEG estimate.
Microsoft stated it expects to spend $190 billion this calendar year. According to Visible Alpha data, this far exceeds analyst forecasts for spending over $150 billion. On a call with analysts, Chief Financial Officer Amy Hood said $25 billion of this spending was due to rising costs for components like chips. “We remain confident in the return on these investments given higher demand signals and increasing product usage,” Hood said during the call.
The number of users for the $30 per month M365 Copilot AI assistant grew to 20 million from 15 million reported in January, according to Jonathan Neilson, Microsoft’s vice president of investor relations. “The fact that we added 5 million seats in one quarter is certainly a message that we feel very, very good about,” Neilson said.
While 20 million users is a small number compared to Microsoft’s total user base, CEO Satya Nadella said on the analyst call that customers who use Copilot use it as much weekly as they use Outlook, the company’s email program. Microsoft also mentioned it has an “AI run rate” of $37 billion. This measures how much revenue it expects to get from selling infrastructure to other companies like OpenAI, plus sales of its own AI products over the next year.
Microsoft reported that capital spending in the fiscal third quarter rose 49% from a year earlier to $31.9 billion. However, this was down from $37.5 billion in the second quarter. Wall Street had expected $34.90 billion in quarterly capital spending, according to Visible Alpha.
