Microsoft Revenues Up 18 Percent to $77.7 Billion as AI Costs Soar Out of Control

Microsoft announced that it earned a net income of $30.8 billion on revenues of $77.7 billion in the quarter ending September 30. Those figures represent gains of 12 percent and 18 percent, year-over-year (YOY). But Microsoft’s costs associated with AI exploded in the quarter to $34.9 billion, a 74 percent gain YOY.

“Our planet-scale cloud and AI factory, together with Copilots across high value domains, is driving broad diffusion and real-world impact,” Microsoft CEO Satya Nadella said. “It’s why we continue to increase our investments in AI across both capital and talent to meet the massive opportunity ahead.”

Productivity and Business Processes was again Microsoft’s biggest top-level business unit, with revenues up 17 percent YOY to $33 billion. Microsoft 365 Commercial cloud revenue grew 17 percent in the quarter, as did Microsoft 365 Commercial products revenues, and commercial seats were up 6 percent. Microsoft 365 Consumer cloud revenue was up 26 percent, with subscriber growth of 7 percent.

Intelligent Cloud came in a close second with revenues of $30.9 billion, a gain of 28 percent YOY. Azure and other cloud services revenues jumped 40 percent YOY, and Server products revenue was up 1 percent.

And More Personal Computing again brought up the rear, with $13.8 billion in revenues, up 4 percent YOY. Windows revenues from PC makers and the internal devices business grew 6 percent in the quarter, partially offset by a decline in Devices revenues. Xbox content and services revenue was up 1 percent, and Xbox hardware revenues fell 29 percent YOY. Search and news advertising was up 16 percent.

But the biggest news, of course, is Microsoft’s capital expenditures tied to the AI datacenter buildout. Capex spending was up 74 percent to $34.9 billion, well above the $24.2 billion in the previous sequential quarter. Roughly half of that cost was tied to short-term assets such GPU and CPU purchases, while long-term assets that will be monetized at up to 15 years hit $11.1 billion, up 71 percent YOY. Microsoft had $19.4 billion in property and equipment costs in the quarter, up 30 percent YOY.

I’ll have a more detailed report about the Microsoft earnings sometime on Thursday.