Microsoft expects to spend a record $30 billion this quarter as it races to build data centers and other support systems for its fast-growing artificial intelligence and cloud computing businesses.
The projected capital spending in the quarter ending Sept. 30 would best the tech giant's previous quarterly spending record of $24.2 billion in the three months that ended June 30.
“We will continue to invest against the expansive opportunity ahead, given our leadership position in commercial cloud, strong demand signals for our cloud and AI offerings, and significant contracted backlog,” Microsoft Chief Financial Officer Amy Hood told investors during the company’s earnings call Wednesday.
The firm posted revenue of $76.4 billion in the most recent quarter, up 18% year over year, driven by rising business demand for its Microsoft 365 Copilot AI assistant and other computing tools. The results exceeded analysts' consensus forecast of $73.9 billion.
The solid results drove a jump in Microsoft's stock market value to over $4 trillion Thursday. The Redmond, Washington-based firm is only the second publicly traded company to reach that threshold, after chip giant Nvidia.
Microsoft and rivals such as Google parent Alphabet and Amazon have warned that limited supplies of AI chips and data center capacity are hampering their ability to capitalize on surging demand for AI and cloud services.
Real estate costs
Microsoft expects to remain "capacity constrained" through the end of the year, Hood said, as the firm races to open data centers in 10 countries across four continents.
"We have $368 billion of contracted backlog we need to deliver, not just across Azure but across the breadth of the Microsoft Cloud," Hood said.
While real estate acquisition, construction and leasing are a significant part of Microsoft’s overall capital spending, the firm does not break down in its financial reports how much of the planned spend is for real estate versus what the firm calls “short-lived assets,” or items such as servers, networking equipment and computers.
However, about half of the $24.2 billion in capital spending in the most recent quarter was for so-called long-lived assets, Hood said. Those items typically include land, buildings, machinery, equipment and vehicles.
Microsoft reported $17.1 billion in cash payments for property and equipment in the latest quarter, up 23% year over year.
'Tremendous opportunity'
Cloud computing and AI "is the driving force of business transformation across every industry and sector," Microsoft CEO Satya Nadella said in the company's earnings statement.
AI has emerged as a major revenue source for the biggest global commercial real estate brokerages as tech businesses lease office space and spend billions to build data centers across the globe.
Executives for real estate services firms CBRE and Newmark told investors during earnings calls this week that data centers helped drive double-digit increases in second-quarter property sales fees and other revenue.
“There's also tremendous opportunity in data centers outside of transactions, in both project management and facilities management,” Newmark CEO Barry Gosin told investors Wednesday.
Microsoft and other tech firms have focused on securing nuclear power facilities to produce the massive amounts of electricity needed to operate AI data centers.
Helion Energy, a startup backed by OpenAI's Sam Altman and SoftBank's venture capital arm, recently broke ground on a planned nuclear fusion power plant that will supply electricity to Microsoft data centers by 2028, Helion said in a statement Wednesday.
The energy company that signed a deal two years ago to sell electricity to Microsoft is building the facility near the Rock Island Dam hydroelectric plant along the Columbia River in central Washington. Microsoft also signed a deal with Constellation Energy last year to restart the Three Mile Island Power nuclear plant in Pennsylvania.
Seattle-based Amazon said last month it will spend at least $20 billion to build data centers in Pennsylvania to power its Amazon Web Services cloud computing platform.