Microsoft announced it will continue investing heavily in data centers through fiscal year 2026, fueled by robust growth in its cloud and artificial intelligence (AI) services. The decision follows a strong third quarter in fiscal year 2025, where the company reported double-digit year-over-year revenue increases across key business segments.
According to Microsoft’s earnings call on April 30, the company’s Intelligent Cloud division led revenue gains with a 21% increase compared to the same period last year. Productivity and Business Processes grew by 10%, while the More Personal Computing segment rose by 6%. Altogether, Microsoft’s total revenue was up 13% year-over-year.
“Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth,” said Microsoft Chairman and CEO Satya Nadella. The momentum in these areas, he emphasized, reflects Microsoft’s central role in enabling digital transformation across industries.
Data Center Expansion Accelerates to Meet Global Demand
To support the rapid growth of its cloud and AI services, Microsoft significantly expanded its global infrastructure in the past quarter. The company opened new data centers in 10 countries across four continents, a move aimed at enhancing service availability and reducing latency for global users.
AI capabilities are advancing quickly, with model performance reportedly doubling every six months. Nadella also noted that Microsoft has successfully reduced the cost per token by more than half—an improvement that makes AI deployment more affordable and scalable for businesses.
One of Microsoft’s key innovations this quarter includes the rollout of AI agents tailored for specific business functions. These include a Sales Agent that turns contacts into qualified leads, a Sales Chat tool to help representatives understand new accounts, and a Customer Service Agent designed to streamline support workflows. Over one million custom agents were created by users through SharePoint and Copilot Studio—an increase of 130% from the previous quarter.
Future Outlook: Continued Growth, Capacity Constraints Possible
Looking ahead, Microsoft anticipates continued strength in its Intelligent Cloud segment, forecasting revenue growth between 20% and 22% in constant currency for the current quarter. This growth is expected to be largely driven by Azure, its cloud platform.
CFO Amy Hood acknowledged during the call that while the company is executing well across both AI and non-AI services, demand is beginning to outpace infrastructure expansion. “In our AI services, while we continue to bring data center capacity online as planned, demand is growing a bit faster. Therefore, we now expect to have some AI capacity constraints beyond June,” she noted.
Despite these upcoming challenges, Microsoft remains confident that sustained investments in infrastructure and innovation will maintain its leadership in the evolving cloud and AI landscape. “These investments, along with focused execution that delivers near-term value to our customers, will ensure we continue to lead through the cloud and AI opportunity ahead,” Hood said.
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