Shares of the tech giant fell nearly 2% in extended trading after the company reported that revenue at its Azure cloud-computing unit rose 40% in the quarter. The result marked a slight acceleration from 39% growth in the previous period and matched Wall Street expectations.
Despite the solid performance, sentiment was dampened by faster gains from rivals. Alphabet’s cloud division posted a 63% revenue increase, comfortably beating expectations of 50.1%, helping its shares climb more than 4%.
The divergence has sharpened investor focus on whether Microsoft is maintaining its early advantage in the AI-driven cloud race. Concerns have been building around what analysts described as “sluggish adoption” of its Copilot 365 assistant and its heavy dependence on OpenAI.
Those worries were reflected in broader commentary that Microsoft may have “lost its early lead in the AI race,” even as the company continues to invest heavily in infrastructure and partnerships.
Capital expenditure rose 49% to $31.9 billion in the fiscal third quarter, below some expectations of $34.90 billion, according to Visible Alpha. Spending had been $37.5 billion in the prior quarter, underscoring the scale of Microsoft’s ongoing AI buildout.
To strengthen its competitive position, Microsoft has expanded its use of Anthropic technology across its cloud platform and products such as Copilot, aiming to meet rising demand for alternative large language models.
At the same time, the company recently restructured its relationship with OpenAI, securing a 20% revenue share through 2030 regardless of technological milestones. However, the revised deal also removes Microsoft’s exclusive rights to resell OpenAI products on its cloud, opening the door for rivals like Amazon and Alphabet to deepen their offerings.
Amazon Web Services has already begun hosting OpenAI’s latest models and Codex coding tools, a shift that could intensify competition for enterprise AI workloads.
Microsoft has previously pointed to cloud capacity constraints as a drag on growth, arguing that its massive spending is necessary to meet demand. The easing of exclusivity arrangements may help alleviate some of that pressure.
However, funding these investments has come with broader cost pressures across the tech industry. Microsoft recently introduced its first employee buyout program in over 50 years, while Amazon and Meta Platforms have also announced workforce reductions affecting thousands of employees.
As capital spending rises and competition accelerates, investors appear increasingly focused on whether Microsoft can convert its AI investments into sustained cloud leadership—or risk ceding ground in a market it once helped define.