Microsoft's AI Growth Drives Both Revenue and Massive Capital Expenditure

Core Insights - Microsoft's transformation story has shifted to focus on artificial intelligence (AI), with Azure as the primary platform for large-scale AI training and inference [3][4]. Financial Performance - In Q2 FY2026, Microsoft's overall revenue reached $81.3 billion, a 17% increase year over year, while operating income rose 21% to $38.3 billion [6]. - The Intelligent Cloud segment saw a revenue increase of 29% year over year, totaling $32.9 billion, with Azure and other cloud services growing 39% [5]. AI Strategy - Microsoft has built an AI business larger than some of its biggest franchises, emphasizing the importance of AI across its entire stack to create new value for customers [4]. - The company retains 80% of sales from OpenAI models to Azure customers, while a smaller percentage comes from Anthropic's AI models [9]. Capital Expenditures - AI-driven capital expenditures increased by 66% in the quarter, with total capital expenditures reaching $37.5 billion [7][10]. - Microsoft's commercial remaining performance obligation increased by 110% to $625 billion, indicating strong long-term demand for AI capabilities [8]. Infrastructure and Governance - The company is investing heavily in data centers and specialized hardware to support AI workloads, reflecting confidence in sustained demand for AI-driven compute [12]. - Governance, security, and compliance are emphasized as essential for large enterprises and governments to adopt AI at scale [13]. Business Applications - Revenue from Microsoft 365 grew 16% to $34.1 billion, driven by strong performance in both commercial and consumer cloud offerings [14]. - Dynamics 365 revenue rose 19%, showcasing AI's impact on business applications like CRM and ERP systems [15].