Microsoft AI spending stokes growing tech bubble concerns

Amy Hood took a look at the numbers, didn’t like what she saw and stomped the brakes.

It was late 2024, and Microsoft Corp. was spending more in a single quarter than it once shelled out in an entire year, racing to build data centers and stock them with chips in anticipation of rising demand for artificial intelligence and other cloud services.

Hood, Microsoft’s longtime chief financial officer, questioned the reliability of the company’s internal projections and believed the spending binge risked getting out of hand, according to multiple people working with her at the time. She made the call to pause numerous expansion projects, these people say.

Then and now, it was a controversial decision. News of the about-face trickled out over the coming months, rattling investors who interpreted it as a negative signal about the viability of AI. Microsoft has defended the pause, saying it gave the company an opportunity to match data center positioning to regional demand. But in the intervening months, Hood herself has acknowledged being surprised that demand for AI services outstripped the company’s ability to provide them. “I thought we were going to catch up,” she said during an earnings call in October. “We are not.”

Today, Microsoft’s business is still being held back by a shortage of data center space, and many of the sites the company abandoned were picked up by rivals.

Microsoft is a $2.8 trillion company with cash flow so stable its debt is considered nearly as reliable as US treasuries. Billions of people use its products, which power much of the world’s computing.

But despite commanding a gusher of cash, Hood, 54, has one of the toughest jobs in tech. Like her counterparts at Alphabet Inc. and Amazon.com Inc., she must assess how much to invest in AI without starving other parts of the company or spooking investors with bottomless spending. It’s a devilishly tough call because projections about a potentially transformative technology like AI are educated guesses at best. Many companies have struggled with the same challenge, and some rivals also throttled back at the same time.

For now, the industry consensus is to open the spigot wide for fear of missing out. Meta Platforms Inc., Alphabet’s Google and Amazon all recently announced plans to spend tens of billions more this year than expected. All cited the need to capture the emerging market for building and deploying AI models and applications.

Microsoft helped kick off the AI race with a big, early investment in OpenAI. But through the frenzy, Hood has worked to keep a lid on costs. The company has let go some 26,000 people in recent years and squeezed budgets, moves that alienated some employees and bruised morale. Wall Street loves her for it. While huge AI investments have forced companies like Oracle Corp. to start burning cash, Microsoft’s margins have been largely stable.

“She is the single person at Microsoft who holds people most accountable,” says Kevin Scott, the company’s chief technology officer.

Bloomberg spoke with more than 40 people who have worked closely with Hood and her team, granting many of them anonymity to allow candid discussion of one of the most powerful people in technology. They describe an incredibly sharp — and at times intimidating — leader who is trusted by Chief Executive Officer Satya Nadella not just on managing budgets, but a wide range of business planning calls. Many describe her role as more akin to a chief operating officer. Hood declined to be interviewed.

Hood’s position seems secure despite the controversial call to slow data center spending last year, but she has plenty of challenges ahead. Despite its early jump on the AI age, Microsoft finds itself in a similar position as many of its rivals: struggling to meet customer demand for computing power and facing increasingly tough questions about whether all that spending will pay off. Microsoft’s shares have fallen sharply in recent weeks amid growing concerns about a potential AI bubble.

Hood gets a ton of credit from Wall Street for shrewdly investing in the cloud in the 2010s while killing off older initiatives that were weighing the company down. With Microsoft in the midst of an even more momentous technological revolution, the question is whether she can do it again.

If Amy Hood has a catch phrase, it’s probably: “Let me give you some coaching.”

When she says that, people presenting her with plans, financial reports or investment ideas know to prepare for a thorough interrogation. During these conversations, Hood brings to bear instincts honed over 23 years at Microsoft, and before that as an investment banker at Goldman Sachs. If Hood decides an idea isn’t well thought out or doesn’t connect to the company’s customers or business, “it’s not going to happen,” says Jon Tinter, Microsoft’s deals chief. Ideas deemed too speculative can also be dismissed. On the other hand, Tinter adds, she’s happy to invest and take risks on good ideas.

Hood often brings a skeptical eye to the data presented to her. In 2019, as Microsoft was getting set to release the second edition of its HoloLens, the team working on the immersive headset was pleasantly surprised by the number of preorders rolling in. They wanted to set up another production line, but ran into resistance from Hood, who questioned the team’s rosy projections, according to people familiar with the exchange. Her scrutiny was prescient. In the end, HoloLens never grew beyond a niche corporate product, weighed down by poor ergonomics and its high cost. It was wound down a few years later.

Volatile moment
Hood was named CFO in 2013 at a volatile moment for the company. Microsoft had missed out on search and mobile software, and the core Windows and Office businesses were under assault from web-based upstarts. Then-CEO Steve Ballmer, who had pushed to acquire Nokia’s handset unit in a last-ditch grasp for smartphone relevancy, announced his retirement three months into Hood’s tenure as CFO.

Nadella, who was named Ballmer’s successor six months later, led a reversal of fortunes for a company that had seemed like a fading power. While he rallied employees around a future based on subscription-based products delivered over the internet, Hood sold Wall Street on the years-off vision of a cloud transformation. She was empowered by a board that wanted more priority placed on investor opinion.

“She has done an incredible job,” said Brent Thill, a Jefferies analyst who has covered the company for more than 20 years. “You either believe in her way or you don’t. And if you don’t, look out, it’s not going to work.”

Nadella and Hood were peers and occasional collaborators as they rose through the ranks at Microsoft in the 2000s. In the C-suite, they’ve developed a kind of good-cop bad-cop dynamic. While they establish company plans together, in many cases Hood is the one demanding results. Her domain has only expanded in the AI era, and last year, she received oversight of teams tasked with strategic partnerships, such as the relationship with OpenAI. Today, she oversees more than 15,000 people, ranging from accountants to dealmakers.

Inside Microsoft, headcount and the license to hire are tightly controlled, with even minor deviations from annual plans requiring a pitch to Hood. Her first response is often to ask the business to look first for cuts or reallocation of existing funding, people who’ve made those requests say. She expects business leaders to come to planning meetings ready to highlight areas where investment can be reduced, not just where they’d like more money.

Two bosses
Hood’s finance department has deputies embedded in Microsoft businesses. They’re in place to keep the unit’s finances on the right track by enforcing limits on budget and hiring. Senior engineering executives, including outgoing workplace applications chief Rajesh Jha and cloud boss Scott Guthrie, who report to Nadella, have remarked to colleagues that they’re essentially accountable to two bosses.

Those who’ve worked with Hood describe her as a quick decisionmaker who is just as likely to ask questions about strategy as to count dollars and cents. She is direct, with a wry sense of humor that often comes out when prodding engineering and sales teams to meet their targets.

In 2019, Hood was brought the ultimate speculative plan: to give $1 billion to OpenAI, a 150-person startup with effectively no revenue. “Amy had to get comfortable with us doing what, to a whole lot of people, felt like a pretty risky thing,” recalls CTO Scott.

Once convinced of the strategic value, Hood helped figure out how to structure the deal and sell it to the board of directors. A subsequent, $10 billion investment in 2023 was an easier sell to the CFO after the wildly successful launch of ChatGPT made the case for the startup, Scott says.

Later on Hood helmed the contentious negotiations about Microsoft’s stake in OpenAI during its restructuring into a for-profit entity. “Her willingness to be patient in a deal until you get to an outcome that makes sense is genuinely world class,” says deals chief Tinter. “There were definitively periods of time during those negotiations where we wouldn’t make a lot of progress for three, four, or five weeks because we were just being patient.”

When talks hit an impasse last year, OpenAI CFO Sarah Friar called Hood to try and work through the sticking points and then traveled to Redmond to meet with her, according to people close to the negotiations. Ultimately, Hood helped bag an outcome that most analysts saw as positive for Microsoft, securing access to OpenAI’s technology for longer, keeping OpenAI’s most successful products on the Azure cloud service and limiting the risk that the startup could suddenly cut off its biggest backer.

As Microsoft ramped up spending on data centers to back OpenAI and its own AI efforts, the economy as a whole was looking uncertain. The pandemic’s boom in digital services came to a sudden end as people started spending money on in-person experiences. Inflation and interest rates rose and many tech companies saw their revenue growth and stock prices suffer.

Hood told divisional leaders it was time to get leaner and reduce their expenses relative to the size of their business, according to people who were there at the time. She said units needed to function more like standalone entities and be accountable for their own margins. In practice, that meant massive layoffs, which have hit in recurring rounds since early 2023. And in what has become virtually an annual ritual, the company recently froze hiring in multiple cloud and sales groups.

Even as revenue surged, Microsoft’s headcount has remained essentially flat — thanks to some limited hiring amid all the job cuts. Divisions across the company — from less profitable ones like Xbox to cash cows like Windows — have grappled with reduced budgets and headcounts. Windows’ advertising budget was slashed by more than $100 million dollars per year, according to a person familiar with the figures.

After Hood imposed a higher margin target, Microsoft’s gaming division canceled products, raised prices and slashed thousands of jobs, Bloomberg previously reported. The belt-tightening at Xbox prompted a slew of gamers to make videos targeting her financial calls. “Amy Hood is very much about ensuring those short-term profits that will make investors happy,” said one YouTuber in a video with over 100,000 views.

Microsoft also wasn’t alone in making cuts to excise pandemic-era bloat and help pay for investments in AI. Hundreds of thousands of workers in the technology industry have lost their jobs since 2022. But the firings were felt deeply at Microsoft, which has long had a reputation for decent work-life balance and long careers. Workers frequently gripe about the knock-on effects of the rolling layoffs: increased workloads, loss of institutional knowledge and a pervasive sense that they’re being squeezed in the AI era.

“In previous years, our culture has felt supportive even through difficult times like layoffs and restructures,” said one worker asking a question during an internal town-hall with leadership in September, according to meeting notes reviewed by Bloomberg. “However, in the recent changes, it has felt markedly different, colder, more rigid and lacking in the empathy that we have come to value.”

Nadella accepted the feedback and pledged to do better, before telling a story about his hopes early in his career to work for DEC, a once-giant computer maker that didn’t survive the PC revolution Microsoft helped foment. The process of hard change at Microsoft, he said, was necessary to stay ahead.

In spring 2025, on Hood’s direction, Microsoft began pulling back on data centers across the world. It stepped away from lease negotiations in London and Chicago and throttled construction on sites in Indonesia and Wisconsin.

Some leaders inside the company tried to persuade Hood it was the wrong call. Today, they blame the decision for a data center supply crunch that has become a major growth bottleneck. That shortage has actually worsened in recent months, according to documents seen by Bloomberg. New subscriptions for Azure cloud services are restricted at a number of crucial server-farm hubs, including in Virginia and Texas.

Hood has told employees and investors that the company is working to get new capacity online at a rapid pace. Last month, Microsoft agreed to scoop up a data center project in Abilene, Texas, that was abandoned by Oracle and OpenAI. Microsoft has also rolled out a tool to help sellers point customers toward different cloud regions if their desired hub isn’t available. To speed things up, Microsoft has turned to neoclouds — smaller cloud providers like CoreWeave Inc. and Nscale — committing more than $60 billion to such upstarts. While relying on neoclouds could help Microsoft cover near-term needs, doing so risks turning them in cloud-computing rivals down the road.

Others defend Hood’s call, saying the pause gave the company time to be more intentional about the buildout. Microsoft’s official explanation for the pause was that it was an exercise in correctly balancing data centers across different regions to match demand.

Hood isn’t afraid to say no to flashy deals that carry risks. Microsoft turned down a massive cloud deal with OpenAI, a version of which ultimately went to Oracle Corp., which has committed to providing $300 billion worth of computing. At first the deal seemed like a coup for Oracle but many investors have since come to see it as a burden with an uncertain return. Oracle’s cash flow is expected to be negative for the next three years, and Hood supporters say she skillfully dodged a bullet.

Heir apparent
As Microsoft’s CFO navigates the AI age, the company has started considering what a post-Hood world looks like. She’s been in the seat for 13 years, by far Microsoft’s longest-reigning CFO and ahead of industry average tenure. Her internal heir apparent, according to several people familiar with the situation, is Mat McBride, who was recently promoted to oversee the company’s commercial finance. Still, a wide network of Hood alumni have gone off to assume senior roles at other companies, making them potentially well-qualified for a return. Another name frequently speculated about in succession discussions is Chris Suh, who spent 25 years at Microsoft and today is chief financial officer of Visa Inc.

But for the near future, it will be up to Hood to manage an ambitious and risky business transformation for the AI era.

Once a week, she chairs a call with senior leaders about how to distribute the company’s most precious commodity: computing power — especially the pricey Nvidia chips that provide much of it.

No one can get enough. OpenAI needs those Nvidia chips to back ChatGPT and help train new models. Internal teams need them to power AI features in Office and to build their own AI models. Salespeople want to rent out servers to customers, but Hood has expressed skepticism that such deals are sufficiently profitable or reliable and often prefers to allocate the computing resources to Microsoft developers.

Sales teams have articulated strong reservations about that approach, arguing that they’re losing ground to rivals. Chief Commercial Officer Judson Althoff has complained about allocation decisions multiple times during leadership calls with Nadella, according to people close to the meetings. He’s not alone; few are getting all the computing power they want.

CTO Scott used to chair those meetings and says doing so isn’t for the faint-hearted: “That is not a fun job, let me tell you.” Bloomberg