Microsoft (NASDAQ:MSFT) shares surged 8% in premarket trading on Thursday after the technology giant issued stronger-than-expected revenue guidance for the current quarter while leaving its capital spending plans for calendar year 2026 broadly unchanged. <\/p>\n
The upbeat outlook followed better-than-expected quarterly earnings, driven by continued strength in Microsoft’s cloud computing and artificial intelligence businesses. <\/p>\n
Analysts Turn More Positive on Microsoft <\/p>\n
Barclays analysts said Microsoft’s latest results provide investors with a reason to “revisit MSFT shares” after the stock’s 19.3% decline since the start of the year. <\/p>\n
“The company is delivering better Azure and finally better Office growth, while also not surprising negatively on its capex outlook and FCF targets,” the analysts wrote. <\/p>\n
“Given the different set-up for other main players (larger AI investments), we see a positive reaction.” <\/p>\n
Capital Spending Remains in Focus <\/p>\n
Microsoft’s capital expenditure plans were closely watched as investors continue to question whether the industry’s massive AI infrastructure investments will generate sufficient returns. <\/p>\n
Last week, Alphabet increased its capital expenditure forecast to as much as $205 billion while also reporting negative free cash flow for the first time after ramping up spending on AI servers and data centres. <\/p>\n
Investor enthusiasm for AI helped drive equity markets to record highs earlier this year, but concerns over valuations and escalating infrastructure costs have intensified since mid-June, particularly across semiconductor stocks. <\/p>\n
Microsoft has also underperformed many of its Magnificent Seven peers this year, with its shares down 19.3% year to date before the latest earnings report. <\/p>\n
The company said its investment plans for calendar year 2026 remain unchanged. Although its latest capital expenditure forecast was revised to $175 billion from the approximately $190 billion announced in April, Microsoft said the figures are broadly comparable after reflecting changes to the expected useful life of its data centres and office buildings. <\/p>\n
Chief Executive Satya Nadella said during the earnings call that Microsoft added 31 new data centres across five continents during the quarter, bringing the total number opened this year to 88. <\/p>\n
Capital expenditures for fiscal fourth-quarter 2026 increased 70% from a year earlier to $41 billion, slightly below Reuters-cited analyst expectations of $42.37 billion. Around two-thirds of that spending was allocated to shorter-lived assets such as CPUs and GPUs to support growing demand for cloud and AI services. <\/p>\n
For the first quarter of fiscal 2027, Microsoft forecast total company revenue of between $89.85 billion and $90.95 billion. <\/p>\n
Azure Delivers Another Standout Quarter <\/p>\n
Microsoft reported adjusted earnings of $4.74 per share on revenue of $90.01 billion for the latest quarter, comfortably exceeding analysts’ expectations of $4.24 per share on revenue of $87.61 billion. <\/p>\n
Revenue from Azure grew 43% year over year, outperforming Reuters-cited Visible Alpha estimates of 39.98% growth. <\/p>\n
Total Microsoft Cloud revenue increased 27% from the previous year to $59.30 billion. <\/p>\n
“We are advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results,” Nadella said in a statement. <\/p>\n
“This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation,” the CEO added. <\/p>\n
AI Investments Begin Delivering Results <\/p>\n
Jake Behan, head of capital markets at Direxion, said Microsoft’s results demonstrated exactly what investors had hoped to see: “strong Azure growth alongside evidence that AI demand remains robust.” <\/p>\n
“After months of questions about the company’s infrastructure spending, the quarter showed that those investments are increasingly translating into revenue growth, backlog expansion and Copilot adoption,” he said. <\/p>\n
“The market may be shifting from rewarding AI exposure broadly to rewarding companies that can execute and monetize their investments. Microsoft has spent much of the past year being viewed primarily as a major capital spender. This report reminded investors that it is also becoming one of the largest monetizers of AI,” Behan added. <\/p>\n
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