Microsoft: Forget what we said, we are going to keep spending on capex
Last quarter, the company offered guidance that its capex spending would be lower in the second half of the fiscal year. Yesterday it said spending would go up.
Yesterday, Microsoft beat earnings and revenue expectations for its first-quarter fiscal year 2026 results. The company delivered another strong quarter, largely in line with last quarter’s results. Investors weren’t exactly pleased, and today the stock is down over 3%. They may have been spooked by talk of even more huge capital expenditure spending.
Microsoft’s closely watched capex spending for the quarter came in at $34.9 billion, a 74% increase year on year. That’s a significant bump, especially considering that last quarter, the company was telling investors that capex growth would be slowing in the second half of fiscal year 2026 (which starts in July).
Microsoft CFO Amy Hood said on the earnings call (emphasis ours):
“With accelerating demand and a growing RPO balance, we’re increasing our spend on GPUs and CPUs. Therefore, total spend will increase sequentially, and we now expect the FY26 growth rate to be higher than FY25. As a reminder, there can be quarterly spend variability from cloud infrastructure build-outs and the timing of delivery of finance leases.”
The “RPO” she is speaking of refers to “remaining performance obligations,” or contracted business that has not yet been realized. It’s a signal of strong demand, and the way you meet that demand is to build more computing capacity, which means higher capex spending.
Microsoft finds itself with $392 billion in RPO, which is up 51% year on year, so demand is indeed rising.
“We will increase our total AI capacity by over 80% this year, and roughly double our total data center footprint over the next two years, reflecting the demand signals we see,” Microsoft CEO Satya Nadella said.
Nadella said the company is building a “fungible fleet” of AI infrastructure globally, and deployed “the world’s first large scale cluster of Nvidia GB300s,” the latest and most powerful chips that Nvidia has on the market. Microsoft currently has over 400 data centers around the globe.
Microsoft also revealed on the call that the company’s earnings net income took a $3.1 billion hit due to its investment in OpenAI. Now that OpenAI’s restructuring is complete, Microsoft’s stake is worth around $135 billion, or about 27% of the company.
OpenAI has also committed to $250 billion worth of spending with its Azure cloud platform, money that was not included in this quarter’s earnings.
