At a Glance

  • Microsoft Chief Financial Officer Amy Hood said Wednesday that the company expects capital expenditure growth to slow in the next fiscal year starting in July, after confirming a pullback in some AI data center projects.
  • The software giant's capital expenditures (including finance leases) totaled $21.4 billion in the third quarter of fiscal 2025 ended March 31, which Hood said on Wednesday's earnings call was "slightly below expectations due to normal fluctuations in the timing of data center lease deliveries." However, third-quarter capital expenditures still rose 53% year over year.
  • Hood said that in the upcoming fiscal year, capital expenditure "growth will be lower than in fiscal 2025 and will include more short-term assets that are more directly tied to revenue than long-term assets."

In-Depth Analysis

The pullback comes as Microsoft and other tech giants face growing investor scrutiny over their hefty AI spending. Meanwhile, U.S. President Donald Trump's erratic tariff measures have also added extra pressure and uncertainty to big tech's latest earnings season.

Noelle Walsh, Microsoft's president of cloud operations and innovation, said in an April LinkedIn post that the company is "slowing down or pausing" some AI data center projects.

Meanwhile, Wells Fargo analysts said last month that Amazon Web Services has paused lease negotiations for some new data centers. The analysts said in a client report: "The scale of the pause is unclear, but the positioning is similar to what we heard from Microsoft."

In January, Microsoft President Brad Smith said the company planned to spend about $80 billion on AI data centers in fiscal 2025 to train large language models and deploy AI and cloud applications. Despite Walsh's comments, a Microsoft spokesperson previously told CFO Dive that the company remains on track to meet that spending target.

According to Walsh's LinkedIn post, Microsoft plans to continue "investing in alignment with business priorities and customer demand."

Dan Romanoff, senior equity analyst at Morningstar, said in an email: "The demand signals from Google, Amazon, and Microsoft are real, and each company is investing to ensure it has enough capacity to serve customers." He noted that executives at these companies "view AI and the broader public cloud as key strategic priorities, so if they lack data center capacity, they will lose customers to competitors and may ultimately no longer be seen as leaders. Public cloud services are high-stakes, and not investing is not an option."

Despite recent questions about Microsoft's AI spending and macroeconomic uncertainty, the company's third-quarter financial performance beat analyst expectations. Total revenue for the quarter was $70 billion, up 13% year over year; server products and cloud services revenue grew 22%.

JPMorgan analysts said in a Thursday client report: "The apparent lack of any substantial macro pressure or signs of strain, including commentary that commercial business demand signals remained consistent in April and are expected to continue, could surprise investors and elicit a positive reaction."