The AI juggernaut rolls on, at least for now. That was the clear message from Microsoft’s quarterly earnings yesterday.
The company handily beat Wall Street analysts’ consensus forecasts for both revenue and profit growth, and provided more buoyant guidance for its next quarter than expected too.
Cloud computing contracts cannot easily be canceled. The company may yet see a negative impact from the economic uncertainty U.S. President Donald Trump’s tariffs have caused.
But it could well be that even in the face of a tariff-induced downturn, cloud computing and artificial-intelligence spending will prove resilient, with organizations prioritizing spending on digital transformation and automation even as they cut back on things like business travel and advertising.
Meanwhile, Amy Hood, Microsoft’s chief financial officer, said that “demand signals” across the company’s business lines had shown no signs of weakening in the past month, an indication that Microsoft may not take a hit from Trump’s tariffs.
Dan Romanoff, an analyst at Morningstar who covers the company, noted that the company’s commercial bookings grew 17% year over year when measured in constant currency, and that “remaining performance obligations”—the amount of money in cloud computing contracts that the company has booked but that have not yet been recognized as revenue—increased an impressive 34% year over year to $315 billion.
There was also no indication anywhere in Microsoft’s financials of any general disillusionment with AI on the part of the company’s customers, despite news reports that some businesses have found it difficult to achieve the productivity gains and return on investment they hoped the technology would produce.
On the contrary, Microsoft saw revenue at its Azure cloud unit grow 33% in the quarter, well ahead of analyst forecasts of 29%. The company said 16% of that gain could be attributed to AI-related spending, up from 13% in the prior quarter.
The company also reported it had seen a major new cloud commitment from OpenAI. That seemed to belie news reports of significant tension in the partnership between Microsoft and the ChatGPT creator, in which Microsoft is a major investor.
He seemed to suggest that a trend towards companies using smaller AI models and AI models whose capabilities are derived from spending more computing power at the time of inference as opposed to during the initial training of the model, was causing the company to rethink what size data centers it needed and where they should be located. Those developments, already underway, had been spotlighted by the debut of the R1 AI model from Chinese startup DeepSeek earlier this year.
“You don’t want to be upside down on having one big data center in one region when you have a global demand footprint,” he said. Hood added that decisions on data centers involved a “very long lead time”—between two and seven years, she said—“so we’re constantly in a balancing position as we watch demand curves.”
The buildout in data centers has continued to pressure Microsoft’s profit margins. The company said its gross margin is 69%, down one percentage point from a year earlier. The fall is attributed to the company’s spending on AI infrastructure. But for now, investors seem untroubled by the slight margin compression.
Microsoft’s total revenue for the past quarter topped $70 billion, 2.3% ahead of consensus forecasts. Operating income was $32 billion, 6% ahead of analysts’ consensus projections, while earnings per share were $3.46, well ahead of the $3.22 analysts had predicted.
Update, May 1: This story has been updated to include comment from Gartner analyst Jason Wong.
