A burst of growth in Microsoft’s cloud computing and artificial intelligence is driving an increase in the tech giant's global spending for data centers and other technology infrastructure, even as the company reduces its workforce and office footprint.
Microsoft, based in Redmond, Washington, reported a 24% increase in revenue from Azure and other cloud offerings that are used by such big companies as PepsiCo and Vodafone.
The jump of cloud income to $31.8 billion in the third quarter drove a 13% increase in total revenue to $56.5 billion from a year ago.
The facilities that support massive levels of data required for cloud computing and AI are a pocket of stability in a real estate market that is struggling against a combination of remote work, declining demand for office space and uncertain property valuations.
While Microsoft and other tech giants such as Google, Meta and Amazon have made deep cuts to their once-vast office portfolios, they have increased spending on development of data centers.
For instance, Microsoft had committed $13.5 billion as of June 30 for construction of new buildings and improvements, mostly for data centers to support cloud and AI growth, according to the company's annual report. Microsoft's latest planned investments include $230 million to build a new Microsoft data center campus near San Antonio.
The company this month revealed plans to invest $3.2 billion to expand its cloud and AI networks in Australia over the next two years, according to Bloomberg News. The plan includes development of nine data centers that would boost the company's total number of facilities on the continent to 29.
"We have the [industry's] most comprehensive cloud footprint, with more than 60 data center regions worldwide, as well as the best AI infrastructure for both training and inference," Satya Nadella, chairman and chief executive officer of Microsoft, told investors Tuesday during the company's latest quarterly call.
While Microsoft is expanding its data center footprint, the company will not renew leases for space totaling more than 1.2 million square feet at two office complexes in the Seattle suburb of Bellevue, Washington, CoStar data shows. The company has also put nearly 500,000 square feet at Millennium Corporate Park in its home city of Redmond up for sublease, CoStar data shows.
Microsoft shelled out $11.2 billion in the quarter that ended Sept. 30 to support rising demand for its cloud and AI offerings, including almost $10 billion paid for property and equipment. That's an increase from $6.3 billion spent in the same quarter a year ago.
Microsoft's Azure cloud service competes with Amazon Web Services as well as offerings by rivals such as Google and IBM.
"We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers,” Nadella told investors.