Microsoft projects $170bn capital spending in fiscal 2027, holds to positive cash flow

The capex forecast is the key number for the AI supply chain. Sustained demand for chipmakers and third-party data-centre providers is implied by plans to spend more than $50bn next quarter and about $170bn across the year, with CPUs and GPUs at the centre of the outlay. Hood's assurance on cash flow and her restrained comments on borrowing could ease concerns about how the expansion is funded, a contrast with the financing debate around some rivals. Projected Azure growth of 49% to 50% gives investors a near-term yardstick for the efficiency argument.

Earlier:

• Microsoft tops Q1 expectations, Azure grows 48%, capex comes in $6bn below forecast

Microsoft is set to spend at record levels on AI, and its CFO argues that efficiency, not scale alone, will allow the spending to pay for itself.

Summary:

• Amy Hood, Microsoft's CFO, said the company is still projected to have positive free cash flow in fiscal 2027
• Capex came to around $45bn in the fiscal first quarter, is set to pass $50bn in the second, and totals roughly $170bn for the year
• The increase will be driven by CPUs, GPUs and third-party capacity arriving in the fiscal second half
• Azure's revenue growth is forecast at 49% to 50% in the second quarter, with engineering efficiencies contributing
• During the quarter, 24 data centres were switched on across five continents
• Companies with 50,000 Copilot seats were eight times as numerous as a year earlier, and daily Copilot users grew fivefold

Amy Hood, Microsoft's CFO, used Wednesday's earnings call to make the case for the payoff from the company's AI infrastructure investment. The company will remain free cash flow positive this fiscal year, she told analysts, even as capital spending approaches around $170bn.

Hood said around $45bn went to capital expenditures in the fiscal first quarter, with the fiscal second quarter expected to exceed $50bn. She argued that rising infrastructure efficiency allows each dollar of capex to support more revenue and higher returns over time, a message directed at investor worries about whether AI spending will pay off. The faster pace of spending will be driven by CPUs and GPUs, along with third-party capacity arriving in the fiscal second half.

On funding, Hood said Microsoft would be open to alternative capital-raising options should they prove attractive and sensible, but said the company has not needed to do so and is content with its positive cash flow.

The theme of efficiency kept returning. Engineering improvements allowed Microsoft to address additional Azure capacity requirements in the first quarter, Hood said, and those gains, with other factors, should push Azure growth to between 49% and 50% year over year in the second quarter, compared with 48% in the first. Chief Executive Satya Nadella said 24 new data centres were brought online across five continents during the quarter, capacity is being added faster, and the company is drawing more from existing infrastructure by optimising across chips, models and software.

Nadella also highlighted growing use of Microsoft's AI tools. Compared with a year earlier, the number of customers running 50,000 Copilot seats had multiplied eightfold, and daily Copilot usage rose close to 50% quarter over quarter and fivefold year over year. LinkedIn sees more than 10 million members using AI-powered job search daily, and the agentic hiring tools have 25,000 customers. Recruiters using the hiring assistant identify interview-quality candidates 33% more quickly while reviewing 83% fewer profiles, he said.

With the updated guidance, the question becomes whether the returns Hood described will arrive on schedule, rather than whether Microsoft is spending enough.