Microsoft shares rose eight percent following earnings call
Microsoft Azure alone brought in revenue of $75 billion in fiscal year 2025 - with the company counting years as June to June.
Microsoft CEO Satya Nadella revealed the cloud unit's growth in the company's latest earnings call, saying it had been driven by continued investment in AI and cloud infrastructure.
In total, Microsoft has "stood up" more than 2GW of data center capacity in the last year.
The company now has more than 400 data centers across 70 regions.
The data center regions, Nadella added, are all "AI first" and can support liquid cooling. He said that Microsoft is "driving and riding a set of compounding S curves across silicon systems and models to continuously improve efficiency and performance for our customers."
Despite the continued investment in infrastructure, the cloud giant still remains capacity-constrained.
Total capex for Q4 of 2025 was $24.2bn, up 27 percent year over year (YoY). This is expected to grow again next quarter - with the company predicting $30 billion in capex.
Speaking on the capex rise, CFO Amy Hood said that it will continue to grow, but the 2025/2026 shift is expected to be slower than was seen between 2024/2025.
She added: "Due to the timing of delivery of additional capacity in H1, including large finance lease sites, we expect growth rates in H1 will be higher than in H2."
When asked about how the company balances capex with revenue expectations, Hood noted that the company currently has $368bn of "contracted backlog" across Azure and the rest of Microsoft Cloud.
Hood told investors: "In terms of feeling good about the ROI and the growth rates and the correlation, I feel very good that the spend that we’re making is correlated to basically contracted on the books business that we need to deliver and we need the teams to execute at their very best to get the capacity in place as quickly and effectively as they can."
Despite the continually growing expenses of AI, Microsoft posted whole-company quarterly revenue of $76.4 billion, an increase of 18 percent YoY. Within that, Intelligent Cloud - which includes Azure - brought in $29.9bn, up 26 percent. For comparison, the previous quarter saw Intelligent Cloud revenues of $26.7bn.
For the whole year, Nadella revealed that Azure alone surpassed $75 billion, up 34 percent across all workloads, out of a total Microsoft Cloud revenue of $168 billion, up 23 percent, and whole-company annual revenue of $281.7bn, up 15 percent.
Microsoft Cloud's gross margin was 68 percent for fiscal year 2024, down two points YoY, "from the impact of scaling our AI infrastructure," while partly offset by gains in Azure and M365.
CEO Nadella drew particular attention to "accelerating" migrations to Microsoft Cloud - noting "Nestle, for example, migrated more than 200 SAP instances, 10,000 plus servers, 1.2 petabytes of data to Azure with near zero business disruption. That makes it one of the largest and most successful migrations in business history." Within this, the company said that it is expecting its on-premises server business to decline in the "low to mid single digits" with customers opting to shift to cloud offerings.
Operating income for the quarter was $34.3 billion, up 23 percent YoY, and for the year reached $128.5bn, up 17 percent.
Following the earnings release, Microsoft shares jumped by more than eight percent, edging the company's market cap to four trillion.
While most of the focus was, understandably, on the Azure and AI side of business growth, no mention was made of the ongoing discussions with OpenAI. With the cloud provider being dropped as OpenAI's exclusive cloud provider earlier this year, discussions are reportedly ongoing about the future of Microsoft's relationship with OpenAI as the latter seeks to transition to a for-profit company.
The latest reports on the subject suggest that Microsoft is negotiating access to OpenAI's technology even if the latter manages to achieve "artificial general intelligence," something previously stipulated against in the existing contract. No deal has yet been finalized.
Also absent from the conversation was the July 1 letter from more than 60 shareholders calling for the company to publish a report "assessing the effectiveness of its human rights due diligence processes" as a result of Microsoft's role in the Israel-Palestine conflict.
The lead filer, the Religious of the Sacred Heart of Mary, said: “From our founding in 1849, the Religious of the Sacred Heart of Mary, an international congregation of Catholic women religious, have been committed to our mission ‘that all may have life.’ As shareholders, we are deeply disturbed by Microsoft’s apparent ineffective due diligence with regard to human rights violations by its customers against the Palestinian people and others.”
Microsoft - and other cloud hyperscalers - have long been reported to be providing their technology to the Israeli military, with Microsoft confirming as such in May of this year. Microsoft claims that its technology has not been used to target or harm people in the conflict in Gaza.
While Microsoft has continued providing cloud services to Israel's government and military, earlier this month, the company was accused by Nayara Energy of shutting off its cloud computing services despite all licenses being paid up, because of Nayara's ties to Russia and sanctions placed on the company by the EU.
"While the sanctions originate exclusively from the EU, Microsoft - a US-headquartered corporation - has chosen to withdraw services from Nayara Energy without any legal requirement to do so under US or Indian law. This action has been taken unilaterally, without prior notice, consultation, or recourse, and under the guise of compliance. Such moves signal a worrying trend of global corporations extending foreign legal frameworks into jurisdictions where they have no applicability," the company wrote.
