Microsoft Azure Revenue Growth Beats Estimates Amid AI Spending Concerns
Microsoft's cloud growth is showing no signs of slowing down. The company reported a 43% revenue growth in its Azure business, beating expectations and alleviating concerns that the high costs associated with artificial intelligence (AI) infrastructure were becoming unsustainable.
The strong performance was driven by demand from customers beyond the largest US model makers, as well as a rise in paid seats for Microsoft 365 Copilot to over 30 million. The contracted backlog rose to $678 billion, indicating robust future growth prospects.
Microsoft's accounting practices also came under scrutiny. The company extended its data center lease accounting from 15 years to 25 years, which will spread costs over more years and improve reported free cash flow in the short term. However, this move has sparked debate about whether it masks ongoing cash obligations for future capacity.
The market is now watching Microsoft's 'AI spending burden' closely, with some analysts viewing $329.1 billion of unstarted data center leases as a confidence booster or a reminder of impending cash commitments.