On Monday, about 60,000 Microsoft employees in the US, UK, Canada and India opened an email offering them a voluntary buyout from the company.
Two days later, Microsoft told Wall Street it had beaten expectations again: $92.3 billion in revenue, $36.6 billion in net income, and Azure growing 48%. The stock rose about 4% after hours.
The two announcements are connected. Staying ahead in AI is costing Microsoft a fortune: $45.2 billion on infrastructure in three months, most of it on chips. Free cash flow, too, fell 27%. Something has to balance that spending, and for now, it’s headcount.
For shareholders, this quarter is proof the AI bet is working. For the employees weighing that offer, it’s a reminder of who pays for it.
Damilare Odedina
Microsoft is buying hardware that won’t last
Roughly three-quarters of that $45.2 billion went on what Microsoft calls short-lived assets, mainly GPUs and CPUs. Last quarter, it was about two-thirds.
That share matters more than the headline figure. A data centre lasts decades, but the chips inside it are overtaken in a few years. Microsoft isn’t paying once to build its AI business. It’s committing to pay again every time a faster generation of chips arrives.
It’s also spending faster than it can install. CFO Amy Hood said some capacity Microsoft had ordered from third-party GPU providers arrived late, pushing that spending into the second half of the year. She expects capital spending to top $50 billion next quarter and reach about $170 billion in 2027.
Azure is why Wall Street is relaxed
Investors would be nervous about that bill if they couldn’t see what it buys. This quarter, Microsoft made sure they could. For the first time, it published Azure’s revenue in dollars: ~$33.2 billion, up 48% year on year.
That was a deliberate choice. A growth percentage tells shareholders things are going well. A dollar figure lets them check the spending against the return. Microsoft Cloud as a whole brought in $63.9 billion, almost 70% of the company’s revenue, and Hood said demand still exceeds supply.
Copilot is starting to contribute too. Nadella said the number of people using Microsoft 365 Copilot rose 50% from the previous quarter, though Microsoft still won’t say how many of them pay for it.
Everything that isn’t AI is shrinking
Outside the cloud, the picture changes. Devices and Consumer, the segment that holds Windows, Xbox and advertising, fell 3% to $15.5 billion. Windows revenue from PC makers and Surface dropped 22%. Microsoft blamed this partly on last year’s rush to upgrade before Windows 10 support ended, along with weak PC demand and rising memory costs.
Xbox hardware revenue fell 14%, and content and services slipped 2%, the fourth straight quarterly decline. Microsoft still hasn’t updated its Game Pass subscriber count since announcing 34 million more than two years ago.
Nadella’s answer is that AI will make the PC matter again. “As more capable models run locally, we see an opportunity to make more intelligence effectively unmetered,” he said. It’s a good line, but it’s a promise, and a promise doesn’t show up as revenue.
The workforce is the cost that can move
Microsoft can’t make chips cheaper or make people buy PCs. But it can change how many people it employs.
The company had about 223,000 staff at the end of June. In April, it offered voluntary retirement to 7% of its US employees. In July, it laid off 4,800 people. Now more than a quarter of the company is eligible for a buyout. The offer covers teams including Windows and Devices, gaming, finance, and, tellingly, AI experiences and Copilot. Marketing, commercial sales, and security are left out.
A buyout is not a layoff. Microsoft reportedly expects fewer than 30% of eligible staff to accept, and they have until early December to decide. But “voluntary” is doing a lot of work here.
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