Microsoft’s CFO Highlights Record Capex, OpenAI Deal in Internal Memo

Microsoft Chief Financial Officer Amy Hood highlighted a record $34.9 billion in spending on infrastructure to meet AI demand and the company’s new OpenAI deal in an internal memo to company employees following earnings on Wednesday.

Microsoft reported revenue of $77.7 billion for the first quarter of its fiscal year ending in September, exceeding Wall Street expectations. Microsoft’s stock fell more than 3% in after-hours trading, amid signs that demand for AI and cloud computing resources is exceeding the company’s supply.

An Azure outage preceded the earnings release. Investors are also broadly worried about whether Big Tech’s massive spending on AI infrastructure will pay off.

Hood sends out these emails every quarter when Microsoft discloses its financials. The memos mostly rehash what the company reports publicly, such as how revenue and profit are growing, but often they show what developments the executive deems most important.

In this quarter’s memo, Hood called out the company’s record $34.9 billion in spending on computing resources like GPUs, CPUs, and datacenter infrastructure to “expand capacity and support strong demand signals we see.” Microsoft forecasted that it would spend $30 billion in capex in the first quarter.

“Demand continues to accelerate, and we’re investing to capture the opportunity ahead,” Hood wrote. “Across teams, we’re bringing new products to market and adding capacity at record speed to deliver meaningful impact for our customers.”

The earnings release comes after Microsoft and OpenAI signed a new deal. Microsoft gets a 27% stake in OpenAI’s for-profit business, valued at about $135 billion, and gives up the right to first refusal to provide new computing resources under the deal.

Hood’s email called the deal “another big step forward in a partnership that’s been game-changing for our industry,” but said it had no impact on the results since the companies signed the deal after the quarter closed.

Read the email:

Team,

This afternoon, we announced our first-quarter financial results. We exceeded Wall Street expectations, growing revenue 18% to $77.7 billion and operating income by 24% to $38.0 billion — a strong start to the fiscal year with continued momentum and share gains across many of our businesses.

Yesterday, we signed a new agreement with OpenAI — another big step forward in a partnership that’s been game-changing for our industry. Our Q1 results do not include any impact from this new agreement, as it was signed after the quarter ended.

Microsoft Cloud revenue was $49.1 billion, growing 26% (25% in constant currency), driven by accelerating demand and the trust customers place in us to power their innovation, growth, and transformation.

Across the company, there were many highlights this quarter, but a few for me stand out as reminders of the critical role our products and services play for our customers every day:

• Commercial remaining performance obligation (RPO) grew over 50% to $392 billion — nearly doubling over the past two years.
• We invested $34.9 billion in capex on GPUs, CPUs, and datacenter infrastructure to continue to expand capacity and support strong demand signals we see.
• Azure and other cloud services revenue grew 39% in constant currency, ahead of expectations. Customers are putting our full stack — cloud infrastructure, AI, data, and applications — to work, embedding AI throughout their business.
• Microsoft 365 commercial cloud revenue grew 17% and 15% in constant currency reflecting continued ARPU growth from E5 and M365 Copilot as well as seat growth of 6%.
• M365 Consumer cloud revenue increased 26% and 25% in constant currency, and subscriptions were over 90 million.
• Search and news advertising ex TAC revenue grew 16% and 15% in constant currency driven by higher search volume and continued benefit from third-party partnerships. Bing and Edge again took share.
• Windows OEM and Devices revenue increased 6% primarily from strong demand ahead of Windows 10 end of support.
• Xbox content and services revenue increased 1% and set a record for Xbox players on PCs as well as Minecraft monthly active users.
• And, LinkedIn grew 10% and 9% in constant currency and now has nearly 1.3 billion members.

Investors tune in to our earnings call for the full details on this quarter and a look ahead to Q2. I recommend you do the same — it helps create shared context as we deliver on our commitments. Join live today at 2:30 PM Pacific, listen on-demand, or check the transcript on the Investor Relations website.

Then, mark your calendar for Ignite, November 18-21, a showcase of our latest innovations. The opening day keynote is the one to watch, with Judson, Scott, and Ryan highlighting how we’re helping customers use AI and the Microsoft Cloud to drive real impact.

Finally, thank you. We’ve had a great start to our fiscal year, and there’s nothing quite like being part of a winning team — focused, collaborative, and always pushing to do its best for our customers. Demand continues to accelerate, and we’re investing to capture the opportunity ahead. Across teams, we’re bringing new products to market and adding capacity at record speed to deliver meaningful impact for our customers. It’s a defining time not only for our business, but for every organization — and we’re only getting started.

With appreciation and gratitude,  

Amy

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