Microsoft Extends Data Center Lifespans to Soften AI Buildout Costs

Microsoft reported strong growth in its cloud and artificial intelligence businesses while also working to moderate the impact of capital expenditures.

The company said in a Wednesday (July 29) earnings release that during the quarter ended June 30, its Intelligent Cloud revenue increased 32% year over year to $39.3 billion, its Productivity and Business Processes revenue rose 14% year over year to $37.8 billion, and its More Personal Computing revenue declined 4% year over year to $12.9 billion.

Overall, Microsoft’s revenue was up 18% year over year to $90.0 billion, according to the release.

Microsoft Chairman and CEO Satya Nadella said in the earnings release that customers’ confidence in Microsoft’s AI offerings was reflected by Azure revenue topping $100 billion for the first time and Microsoft 365 Copilot surpassing 30 million paid seats.

During a Wednesday earnings call, Nadella said Microsoft 365 Copilot’s net seat adds more than doubled quarter over quarter, the number of conversations per user nearly doubled year over year, and the number of customers with more than 5,000 seats increased seven times year over year.

“NHS England, for example, is rolling out Copilot to 505,000 clinicians and staff, the largest healthcare deployment of its kind, after a trial showed it saved employees an average of 43 minutes per day,” Nadella said during the call.

Microsoft’s capital expenditures increased 70% year over year to $41.0 billion during the most recent quarter, according to a fourth quarter fiscal year 2026 results presentation released Wednesday.

The presentation attributed the increase to supporting customer demand for Microsoft’s cloud and AI offerings as well as the impact of higher component prices.

Microsoft’s capital expenditures expectations for the 2026 calendar year remain unchanged at about $175 billion, while those for full year fiscal 2027 are expected to grow year over year, according to a first quarter fiscal year 2027 outlook presentation released Wednesday.

The outlook presentation said that the expectations for the 2026 calendar year include the impact of a useful life change on future lease classification.

Microsoft Executive Vice President and Chief Financial Officer Amy Hood said during the earnings call that as of the start of fiscal year 2027, the company is extending the estimated useful life of its data centers and office buildings from 15 years to 25.

“The greater impact is on capital expenditures as more of our future data center leases will shift from finance leases to operating leases,” Hood said. “As a result of this update, finance leases are included in capital expenditures while operating leases are not. Outside of this useful life impact, our calendar year 2026 capex investment expectations remain unchanged. However, the shift from finance to operating leases adjusts our expectation to approximately $175 billion.”

Looking ahead, Microsoft expects its total revenue to see double-digit growth during full year fiscal 2027, according to the outlook presentation.