Microsoft’s Azure Soars: Wall Street Impressed with $37B AI Run Rate

Microsoft’s Azure Cloud Business Soars with 40% Growth

Microsoft’s Azure cloud business experienced a remarkable 40% growth in the March quarter, surpassing the company’s own expectations. This solid performance has answered lingering questions about Microsoft’s ability to turn its substantial investment in AI infrastructure into tangible financial results.

The company’s revenue increased by 18% to $82.9 billion, outpacing the analyst consensus of $81.4 billion. Additionally, earnings per share saw a significant 23% jump to $4.27, exceeding Wall Street’s forecast of $4.06.

AI Milestone: Microsoft revealed in its earnings report that its AI business has reached an annual revenue run rate of $37 billion, marking a remarkable 123% increase from the previous year. This update comes after the company reported a $13 billion run rate in January 2025.

Capex Insights: Capital spending decreased to $31.9 billion from the previous quarter’s $37.5 billion. Microsoft clarified that this decline was due to the timing of data center construction and hardware deliveries, rather than a decrease in demand for cloud and AI services.

Microsoft 365 Copilot: The paid seats for Microsoft 365 Copilot have surpassed 20 million for the quarter, up from 15 million in January. This translates to approximately 4.4% of the company’s commercial base being on the paid enterprise AI plan.

Cloud Success: Microsoft Cloud revenue, which includes Azure, commercial Microsoft 365, LinkedIn, and Dynamics 365, saw a 29% increase to $54.5 billion. The company’s remaining performance obligations, indicating contracted future revenue, stood at $627 billion, with a significant portion tied to OpenAI.

Other notable highlights in Microsoft’s business include:

• More Personal Computing Segment: Revenue in this segment dipped by 1% to $13.2 billion, with declines in Xbox content and services revenue and Windows OEM and devices revenue, offset by a 12% growth in search advertising revenue.
• Productivity and Business Processes Segment: This segment, including Microsoft 365, LinkedIn, and Dynamics 365, grew by 17% to $35 billion, with increases in LinkedIn revenue by 12% and Dynamics 365 revenue by 22%.
• Intelligent Cloud Segment: Home to Azure, this segment saw a substantial 30% growth to $34.7 billion, nearly matching the productivity segment in size for the first time.

These results come on the heels of Microsoft’s stock experiencing a 10% drop, erasing $357 billion in market value, despite the company surpassing revenue and earnings expectations.

Investor concerns centered around record capital spending, the adoption rate of the Copilot product within Microsoft 365’s commercial base, and a revenue backlog heavily reliant on OpenAI.

The dynamics of the OpenAI partnership have evolved since then.

This week, the partnership underwent restructuring, with OpenAI relinquishing its exclusive commitment to Microsoft’s Azure cloud and gaining the flexibility to run its products on other platforms, notably Amazon Web Services. In return, Microsoft secured its revenue-sharing agreement and removed a clause that could have terminated it if OpenAI had declared artificial general intelligence.