Microsoft – Double Dipping in AI

Last week, Microsoft released its Q4 2025 results, reporting revenue of $76.4 billion, an 18% increase year over year. Operating income rose more sharply, up 23% to $34.3 billion. The company’s strong performance was largely driven by its cloud computing division, which continues to be a major growth engine. Cloud revenue reached $46.7 billion for the quarter, up from $36.9 billion in the same period last year. 

A key factor behind this growth is Microsoft’s ability to deploy AI infrastructure more rapidly than competitors like Alphabet and Amazon. This advantage is reflected in the performance of Azure, Microsoft’s cloud computing platform. For FY 2025, Azure’s revenue surged 34% to $75 billion. Azure allows users to access scalable computing resources – including storage, databases, analytics, and AI – over the internet, enabling businesses to adjust capacity based on demand.  

To support this expansion, Microsoft significantly ramped up its capital expenditure. In FY 2025, the company spent $88.2 billion, and it plans to increase that figure to $120 billion in FY 2026. This marks a nearly fourfold increase compared to its capital spending in 2023. 

Microsoft’s cloud strategy has also evolved beyond its initial partnership with OpenAI. The company now hosts a broader range of models, including Grok and Meta’s Llama, on its platform. This diversification has enhanced customer choice and contributed to the continued growth of its cloud revenue. 

Despite these financial gains, Microsoft, like other major tech firms, has been reducing its workforce. The company has emphasized that AI is helping streamline operations and improve efficiency, suggesting that automation is playing a growing role in its internal processes. 

Looking ahead, the race to build out cloud and AI infrastructure shows no signs of slowing. Capital expenditure is expected to continue rising, driven by the need for more semiconductors, energy, water, and land. As these resource-intensive platforms scale, cloud providers will need to refine their business models to ensure long-term profitability.