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Dive Brief:
- Microsoft’s capital expenditures reached $37.5 billion for the period ending Dec. 31, 2025, with roughly two-thirds going to GPUs and CPUs as “customer demand continues to exceed our supply,” Microsoft EVP and CFO Amy Hood said during the company’s Q2 2026 earnings call on Wednesday. Remaining spend was allocated to assets including large data center sites.
- When it comes to cloud, “the key to long-term competitiveness is shaping our infrastructure to support new high-scale workloads,” Microsoft CEO Satya Nadella said during the call. “We added nearly 1 gigawatt of total capacity this quarter alone.”
- Microsoft’s cloud revenues rose 26% to $51.5 billion year-over-year, the company reported. Revenue for Microsoft Azure and other cloud services increased 39%, compared with 31% in the previous fiscal year Q2.
Dive Insight:
Microsoft’s capital expenditures are fueling its AI investments in a fiercely competitive market as the technology boosts cloud revenue. Those same investments are also raising concerns about the company’s long-term strategy.
The company’s growth across Azure and other products demonstrates Microsoft is successfully scaling infrastructure and business applications together, a lynchpin for enterprise AI adoption, said Keith Kirkpatrick, research director of enterprise software and digital workflows at The Futurum Group.
However, Microsoft’s significant AI investments remain a concern.
“I’m not completely sold on the company’s economics and pricing of AI at scale, which from an enterprise user perspective still revolves around add-on user licenses to access Copilot features,” Kirkpatrick said in an email. Microsoft plans to raise the price of its 365 suite subscriptions in July, citing the addition of more AI tools including Microsoft 365 Copilot Chat in its products.
The earnings call also reflected a step back to reality for Microsoft after months of hype, said Forrester Senior Analyst Dario Maisto. Customers are being more cautious about cloud purchases and how they pay for it, particularly as sovereignty becomes increasingly important.
“As an effect of digital sovereignty concerns, clients are moving from a best of breed and hyperscaler-only approach to more selective and price-sensitive buying behavior and are now much more open to considering local players than they have in the past,” Maisto said in an email.
Nadella noted rising interest in sovereignty options among its customers, pointing out that Microsoft made investments in seven countries during the second quarter.
“Sovereignty is increasingly top of mind for customers and we are expanding our solutions and global footprint to match,” he said.
Concerns about sovereignty apply to AI as well as cloud, with 35% of countries expected to be locked into region-specific AI platforms by 2027, according to Gartner research published Thursday.
Countries are increasing investments in local AI stacks as they look to meet sovereignty goals and diversify beyond U.S. companies, including for “computing power, data centers, infrastructure and models aligned with local laws, culture and region,” Gaurav Gupta, VP analyst at Gartner, said in a press release.
Microsoft is feeling the effect of growing sovereign AI interest as well.
“We are seeing increasing demand for region-specific models, including Mistral and Cohere, as customers look for sovereign AI choices,” Nadella said.
Through Microsoft Foundry, the company’s Azure enterprise AI operations platform, Nadella said Microsoft is giving customers the ability to customize and fine-tune AI models to meet sovereignty considerations.
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