In an environment where recession warnings are growing louder, even Microsoft isn’t untouchable.
Since late 2022, Microsoft has led the charge in AI infrastructure, thanks to its multibillion-dollar partnership with OpenAI. The race to dominate generative AI sparked a frenzy in data center development, GPU acquisition, and global capacity expansion. But in recent weeks, that expansion has shown signs of slowing.
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“We may strategically pace our plans,” Microsoft’s Head of Cloud Operations Noelle Walsh wrote in a LinkedIn post earlier this month.
She said Microsoft had undertaken the “largest and most ambitious infrastructure scaling project” in its history but would now be “slowing or pausing some early-stage projects.”
In the past six months, Microsoft has pulled back from more than two gigawatts of AI cloud capacity across the U.S. and Europe, analysts at TD Cowen noted. In Ohio, a $1 billion data center was recently shelved.
Still, analysts say this is less about abandoning AI and more about shifting from the costly infrastructure buildup toward more selective investments.
“Over the past few quarters, Microsoft has ‘overspent’ on land and buildings but is now going back to a more normal cadence,” Barclays analyst Raimo Lenschow wrote, according to Business Insider.
Microsoft’s (MSFT) stock is down 11.8% year-to-date as of April 17, yet this is the smallest drop among the Magnificent 7 tech giants. By comparison, Nvidia (NVDA) , and Tesla (TSLA) have shed 22% and 40%, respectively.
Compared to Nvidia, Apple (AAPL) , and Tesla, Microsoft is less exposed to tariff impact as it doesn’t deal much in physical or consumer products.
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In Microsoft’s fiscal year 2024, its cloud segment, which includes Azure, was the company’s largest revenue contributor, generating about 43% of the company’s total revenue.
What’s more, Microsoft’s focus on enterprise customers means that a big portion of its revenue streams is tied to long-term contracts, giving Microsoft extra stability.
Still, Microsoft isn’t entirely immune to the pressures.
In its latest-reported quarter ended December 2024, Microsoft posted earnings per share of $3.23 on revenue of $69.6 billion, both topping consensus estimates.
But growth in Azure, Microsoft’s AI-focused cloud platform, came in softer than expected, and the company’s revenue outlook for the current quarter fell short of forecasts. Revenue from Azure and related cloud services rose 31% year over year, slightly below the 33% growth reported in the previous quarter.
