Microsoft says cloud AI demand is exceeding supply even after 79% surge in capital spending
Amy Hood, chief financial officer at Microsoft, speaks during a presentation on affordable housing in Bellevue, Washington, on Jan. 17, 2019.
Chona Kasinger | Bloomberg | Getty Images
Microsoft is increasing spending at a rate not seen since at least 2016. It still might not be enough.
In its earnings report on Thursday, Microsoft said capital expenditures jumped 79% from a year earlier to $14 billion. The company is spending much faster than it’s increasing revenue — sales climbed 17% in the period.
Even with all that investment, Microsoft has a shortage of data center infrastructure, specifically for deploying artificial intelligence models.
“We do have demand that exceeds our supply by a bit,” Microsoft Chief Financial Officer Amy Hood told analysts on the company’s earnings call.
Companies need an ever-increasing amount of computing power to run hefty workloads, adding human-like generative AI features to their products. It’s a boom that was kicked off by OpenAI and its ChatGPT chatbot, and Microsoft has followed suit, adding assistants to the Teams communication app, Bing search engine and other services. The technology can summarize meeting transcripts, compose emails, and explain information from the web.
Microsoft isn’t the only AI hardware vendor with a supply challenge.
Nvidia, the biggest developer of processors for training and deploying generative AI models, has been supply-constrained, with revenue more than tripling in consecutive quarters. Now Microsoft, one of Nvidia’s major customers, is feeling the stress.
During the fiscal third quarter, revenue in Microsoft’s Azure cloud rose 31%, with 7 percentage points from AI. Hood said the capacity issue might have affected AI results and will have an impact in the fiscal fourth quarter. A supply limitation means Microsoft has less available capacity to rent out to clients for deploying AI models at the inference stage, she said.
Azure is key to Microsoft’s future, contributing tens of billions of dollars in revenue every quarter and growing faster than most other parts of the company. Within Azure, AI services stand out as a highlight, attracting new clients as Microsoft goes up against Amazon Web Services.
Hood said capital expenditures will increase “materially” in the current quarter, mainly for cloud infrastructure. And she called for higher capital expenditures in the new fiscal year, beginning July 1.
Microsoft intends “to scale to meet the growing demand signal for our cloud and AI products,” she said.
An Amazon worker moves boxes on Amazon Prime Day in the East Village of New York City, July 11, 2023.
Spencer Platt | Getty Images
Amazon is extending its Prime Day discount bonanza, announcing that the annual sale will run four days this year.
The 96-hour event will start at 12:01 a.m. PT on July 8, and continue through July 11, Amazon said in a release.
For the first time, the company will roll out themed “deal drops” that change daily and are available “while supplies last.” Amazon has in recent years toyed with adding more limited-run and invite-only deals during Prime Day events to create a feeling of urgency or scarcity.
Amazon launched Prime Day in 2015 as a way to secure new members for its $139-a-year loyalty program, and to promote its own products and services while providing a sales boost in the middle of the year. In 2019, the company made Prime Day a 48-hour event, and it’s since added a second Prime Day-like event in the fall.
Prime Day is also a significant revenue driver for other retailers, which often host competing discount events.
Technology
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OpenAI CEO Sam Altman speaks during the Snowflake Summit in San Francisco on June 2, 2025.
Justin Sullivan | Getty Images News | Getty Images
OpenAI has been awarded a $200 million contract to provide the U.S. Defense Department with artificial intelligence tools.
The department announced the one-year contract on Monday, months after OpenAI said it would collaborate with defense technology startup Anduril to deploy advanced AI systems for “national security missions.”
“Under this award, the performer will develop prototype frontier AI capabilities to address critical national security challenges in both warfighting and enterprise domains,” the Defense Department said. It’s the first contract with OpenAI listed on the Department of Defense’s website.
Anduril received a $100 million defense contract in December. Weeks earlier, OpenAI rival Anthropic said it would work with Palantir and Amazon to supply its AI models to U.S. defense and intelligence agencies.
Sam Altman, OpenAI’s co-founder and CEO, said in a discussion with OpenAI board member and former National Security Agency leader Paul Nakasone at a Vanderbilt University event in April that “we have to and are proud to and really want to engage in national security areas.”
OpenAI did not immediately respond to a request for comment.
The Defense Department specified that the contract is with OpenAI Public Sector LLC, and that the work will mostly occur in the National Capital Region, which encompasses Washington, D.C., and several nearby counties in Maryland and Virginia.
Meanwhile, OpenAI is working to build additional computing power in the U.S. In January, Altman appeared alongside President Donald Trump at the White House to announce the $500 billion Stargate project to build AI infrastructure in the U.S.
The new contract will represent a small portion of revenue at OpenAI, which is generating over $10 billion in annualized sales. In March, the company announced a $40 billion financing round at a $300 billion valuation.
In April, Microsoft, which supplies cloud infrastructure to OpenAI, said the U.S. Defense Information Systems Agency has authorized the use of the Azure OpenAI service with secret classified information.
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