Microsoft has once again made headlines with its latest quarterly earnings, but not just for the reasons investors might expect. On October 29, 2025, the tech giant reported an 18% surge in sales, reaching a staggering $77.7 billion for the July-September period—beating Wall Street’s already high expectations, according to Reuters and AP. But it wasn’t just the top-line growth that caught attention. Microsoft’s massive—and rising—spending to keep up with the artificial intelligence (AI) gold rush is raising eyebrows across the financial world.
The company’s capital expenditures soared to nearly $35 billion for the quarter, a record figure that eclipsed even the most bullish forecasts. Nearly half of that sum went toward computer chips, with much of the rest funnelled into expanding data center real estate, as reported by AP. This unprecedented outlay is a clear signal that Microsoft is doubling down on AI and cloud infrastructure, hoping to maintain its leadership as demand for these technologies explodes.
Yet, as Microsoft’s CEO Satya Nadella put it, “Our planet-scale cloud and AI factory, together with Copilots across high value domains, is driving broad diffusion and real-world impact. It’s why we continue to increase our investments in AI across both capital and talent to meet the massive opportunity ahead.” The company’s AI assistant Copilot, now sporting a new animated avatar named Mico, is just one example of how Microsoft is weaving AI into its core offerings (Bloomberg).
The spending spree, however, has rattled some investors. Shares in Microsoft dropped more than 3% in after-hours trading after the earnings report was released, according to Reuters and AP. This decline was compounded by an outage affecting the company’s Azure cloud computing platform just hours before the earnings were disclosed—an untimely hiccup that underscored the challenges of scaling global infrastructure at breakneck speed.
Microsoft’s cloud business remains a juggernaut. Revenue from its Azure cloud-computing segment jumped an eye-popping 40% year-over-year, outpacing analyst estimates and driving much of the overall growth. The company’s forecast for the current quarter projects Azure growth at 37%, again slightly ahead of expectations. According to Chief Financial Officer Amy Hood, “growth could have been higher without the capacity constraints,” which Microsoft expects will persist until at least June 2026. The company’s total revenue for the quarter, $77.7 billion, also beat consensus estimates, as did its profit of $3.72 per share (Reuters).
But all this comes at a cost. Microsoft had previously suggested its capital spending might moderate. Instead, it’s warning that spending will rise even further this year—a reversal that has deepened investor concerns. As Bob Lang, chief options analyst at Explosive Options, told Reuters, “The capex number was a little bit worrisome.” With Alphabet and Meta Platforms also warning of higher spending to overcome capacity bottlenecks, some analysts are drawing comparisons to the dot-com boom of the 1990s, when sky-high valuations and heavy investment preceded a dramatic bust.
Despite the jitters, Microsoft’s AI ambitions are clearly paying off for now. The company’s workplace software revenue—including its ubiquitous email and word processing tools—rose 17% to $33 billion, while its cloud-focused business segment brought in $30.9 billion, up 28% from the prior year (AP). Its net income reached $27.7 billion in the quarter, with earnings per share comfortably above Wall Street’s $3.67 consensus, as compiled by Bloomberg.
At the heart of Microsoft’s AI push is its evolving relationship with OpenAI, the maker of ChatGPT and now the world’s most valuable startup. On October 28, 2025, Microsoft announced a revised business deal with its longtime partner. The new arrangement grants Microsoft commercial rights to OpenAI products through 2032 and a roughly 27% stake in OpenAI’s new for-profit arm, valued at about $135 billion. Microsoft has already invested $11.6 billion of the $13 billion it has committed to OpenAI, according to company disclosures (AP, Reuters).
The partnership has been mutually beneficial. OpenAI has committed to buying hundreds of billions—some reports say more than $1 trillion—worth of cloud services from Microsoft, a move that further cements Azure’s rapid growth and strengthens Microsoft’s challenge to Amazon Web Services (Reuters). However, the financial details of how OpenAI will fund such a purchase remain murky, adding a layer of intrigue and risk to the relationship.
Interestingly, Microsoft’s approach to OpenAI is evolving. While it retains exclusive access to OpenAI’s technology until 2032, the company has recently shown a willingness to let some OpenAI contracts go to Oracle, a move praised by analysts as a sign of discipline. Microsoft is also developing its own AI models and exploring partnerships with other companies like Anthropic, aiming to reduce its dependence on any single AI partner. “We have to balance third-party demand with our own first-party needs, fund our own R&D, and build model capability,” Nadella explained to analysts. “Each time we say no to something (that doesn’t serve our long-term interest) I feel better.”
Microsoft’s market value has soared alongside its AI investments. The company’s valuation passed $4 trillion again in October 2025, making it the second company after Nvidia to reach this milestone twice in a single year. Apple also crossed the $4 trillion mark for the first time this week, while Nvidia made history as the first $5 trillion company. These sky-high valuations are fueling both excitement and anxiety on Wall Street, with some warning that the AI investment frenzy could turn into a bust if the technology fails to deliver on its lofty promises (AP).
For now, Microsoft’s aggressive strategy appears to be working. Its “planet-scale cloud and AI factory” is delivering real-world impact, driving growth across its business lines and pushing the boundaries of what’s possible with artificial intelligence. But with capacity constraints, rising costs, and market volatility all in play, the company’s next moves will be closely watched by investors, competitors, and AI enthusiasts alike.
As the race for AI supremacy heats up, Microsoft is betting big that its investments today will pay off tomorrow. Whether that bet pays dividends or sparks a new tech bubble remains to be seen, but one thing’s for sure: the world will be watching.
