Microsoft is experiencing significant capacity constraints in its cloud computing business, with OpenAI driving nearly half of the company’s growing backlog. During its second-quarter earnings call, Microsoft revealed that its remaining performance obligations—essentially the value of future commercial commitments—jumped 110% year over year to $625 billion. Of that, OpenAI accounts for approximately 45%, according to the company. While Microsoft did not disclose the exact contribution from OpenAI in the prior quarter, the figure underscores the deepening reliance between the two companies. OpenAI, which has pledged to spend $250 billion on Azure services, has repeatedly cited a shortage of compute power as a major bottleneck, forcing difficult trade-offs between advancing its research and rolling out new products. CEO Satya Nadella acknowledged the importance of balancing demand across Microsoft’s diverse portfolio. While acquiring new Azure customers remains a strategic priority, he emphasized that growth in other areas like Microsoft 365, GitHub, and Copilot is equally critical. “Acquiring an Azure customer is super important to us, but so is acquiring an M365 or a GitHub or a Dragon Copilot, which are all, by the way, incremental businesses and TAMs for us,” Nadella said. “And so we don’t want to maximize just one business of ours.” Despite reporting strong overall earnings, Microsoft’s stock dropped more than 6% in after-hours trading. Analysts expressed concern over slower-than-expected growth in Azure revenue and a sharp rise in capital expenditures, which surged 66% year over year to $37.5 billion—another record for the company. This spike reflects the massive investments required to keep up with the AI boom. CFO Amy Hood explained that Microsoft must carefully allocate its growing compute capacity across multiple priorities, including first-party AI applications like Microsoft Copilot, internal research and development, and the talent it has acquired. “You end up with the remainder going towards serving the Azure capacity that continues to grow in terms of demand,” she said. The situation is not unique to Microsoft. OpenAI executives have repeatedly highlighted compute shortages as a key constraint on their roadmap. The recent earnings report marks the first since OpenAI completed its restructuring, including a new agreement with Microsoft, its largest investor, which now holds a 27% stake in the public benefit corporation. Hood reaffirmed the strength of the partnership. “It’s a great partnership,” she said. “It’s allowed us to remain a leader in terms of what we’re building and being on the cutting edge of app innovation.”