Microsoft's quarterly capex has declined for the first time in two years.

Revealed during the company's 2025 Q3 earnings call, the decline was put down to data center leasing variability.

While capex was perhaps lower than anticipated, Microsoft saw a strong quarter for its cloud business, with its Azure cloud unit posting a 33 percent revenue gain for the quarter.

The "Intelligent Cloud" division posted revenue of $26.7 billion, up 21 percent year over year (YoY), and also up on the previous quarter, which had revenue of $25.5bn.

Within the segment, server products and cloud services revenue grew 22 percent, while Azure and other cloud services increased by 33 percent, of which the company said AI drove 16 percentage points.

The overall "Microsoft Cloud" segment, which includes other services, had a revenue of $42.4bn, up 20 percent YoY, and a gross margin percentage of roughly 67 percent.

Microsoft's CFO Amy Hood said during the earnings call that the company expects Azure to grow by as much as 35 percent during the current quarter, surpassing analyst expectations.

She added that Intelligent Cloud is expected to see a revenue of $28.75bn to $29.05bn for the current operating quarter.

Capex for the quarter came in at $21.4bn - less than the previous quarter, which was $22.6bn. This is the first quarterly decline in capex at the company for more than two years, and comes after reports that Microsoft was stepping away from data center projects.

Hood said of this that it was "slightly lower than expected due to normal variability from the timing of delivery of data center leases," and added that capex related to PP&E (property, plant, and equipment) was $16.7bn, and roughly half of the company's cloud and AI related spending was on "long-lived assets that will support monetization over the next 15 years and beyond" with the rest on servers including CPUs and GPUs.

Brokerage TD Cowen first highlighted that Microsoft was pulling back on leases, noting in February that the company had withdrawn 200MW of data center leasing agreements, and expanding that number to 2GW of data center projects across the US and Europe a few weeks later.

While those reports caused some speculation, Microsoft has maintained that it is on track for the $80bn spend on data centers planned for 2025.

It is perhaps because of this that CEO Satya Nadella addressed data centers in the first few lines of his opening statement during the earnings call. Nadella told analysts that, during the quarter, Microsoft "opened DCs in 10 countries across four continents" and noted that they continue to expand data center capacity.

He added: "We continue to optimize and drive efficiencies across every layer, from DC design to hardware and silicon to system software to model optimization, all towards lowering costs and increasing performance."

When later questioned by analysts about the data center lease reports, Nadella reaffirmed the company's stance that such leasing changes are business as usual, "it's just that you all pay a lot more attention to what we do quarter-over-quarter nowadays."

Nadella continued: "The key thing for us is to have our builds and lease be positioned for what the workload growth of the future is," adding that the company doesn't want to have "one big data center in one region when you have a global demand footprint. You don't want to be upside down when the shape of demand changes."

Both Nadella and Hood noted that the company is still short of capacity for AI demand.

Nadella also highlighted customers that have increased their "footprints" on Azure, including Abercrombie & Fitch, Coca-Cola, and ServiceNow. He put this down to the "efficiency the cloud provides," data growth, cloud-native growth, and AI.

The company saw a decline in its on-premises server business, however, with revenue from that segment down by six percent. CFO Hood said this was "reflective of the continued customer shift to cloud offerings." Hood said that they expect this decline to continue during this quarter in the "mid-single-digits."

Despite being top of mind for many businesses, the matter of tariffs barely got a mention during the call, other than to note that the uncertainty had led to "inventory levels that remained elevated" in the company's personal computing business.

The company did, however, recently address some of the "geopolitical volatility" regarding how it could impact its European business, and to reassure customers on the continent that moves by the US administration would not impact its services or their security.

Company president Brad Smith pledged in a blog post that the company would increase its data center capacity in Europe by 40 percent over the next two years, adding: "Going forward, our European data center operations and their boards will be overseen by a European board of directors that consists exclusively of European nationals and operates under European law."

Microsoft as a whole saw a revenue of $70.1bn for the quarter, up 13 percent year on year. Operating income was $32bn, up 16 percent, and Net income was $25.8bn, up 18 percent.

Shares in the tech giant rose around eight percent in extended trading after releasing its results.