“With accelerating demand and a growing RPO balance, we're increasing our spend on GPUs and CPUs. Therefore, total spend will increase sequentially, and we now expect the FY '26 growth rate to be higher than FY '25.”

In context

“We expect COGS of USD 26.35 billion to USD 26.55 billion or growth of 21% to 22%. And operating expense of USD 17.3 billion to USD 17.4 billion, growth of 7% to 8%. Operating margins should be relatively flat year-over-year and down sequentially, aligned with historic seasonality. Now other income and expense. The combination of OpenAI's conversion to a public benefit corp and the ongoing nature of our partnership will result in increased volatility. Therefore, going forward, we'll provide our outlook, excluding any impact from our investments in OpenAI. On that basis, in Q2, other income and expense is estimated to be roughly $100 million as interest income will more than offset interest expense. And we expect our Q2 effective tax rate to be approximately 19%. Next, capital expenditures. With accelerating demand and a growing RPO balance, we're increasing our spend on GPUs and CPUs. Therefore, total spend will increase sequentially, and we now expect the FY '26 growth rate to be higher than FY '25. As a reminder, there can be quarterly spend variability from cloud infrastructure build-outs and the timing of delivery of finance leases. Next, our commercial business. In commercial bookings, we expect healthy growth in the core business on a low expiry base when adjusted for the OpenAI contracts in the prior year. And we expect commercial bookings will be positively impacted by the significant OpenAI commitments announced yesterday. As a reminder, larger long-term Azure contracts, which are more unpredictable in their timing, drive increased quarterly volatility in our bookings growth rate. Microsoft Cloud gross margin percentage should be roughly 66%, down year-over-year, driven by the continued investments in AI as well as the mix shift to Azure. Now to segment guidance. In Productiv”