Microsoft (MSFT) Stock: Wall Street Questions $34.9 Billion AI Spending Spree

TLDR

• Microsoft stock has underperformed big tech peers with only 13% gains in 2025 despite strong financial results
• The company spent $34.9 billion on capital expenditures in Q1, exceeding its $30 billion guidance
• First quarter revenue reached $77.7 billion, up 18% year-over-year, with Azure growing 40%
• Commercial bookings surged 112% driven by OpenAI Azure commitments and large enterprise deals
• Analysts maintain a Strong Buy rating but investors worry about AI bubble risks

Microsoft shares have slipped in recent months as investors reassess the company’s heavy spending on artificial intelligence infrastructure. The stock has gained only 13% this year, lagging behind the S&P 500’s 16% climb and trailing far behind Google’s 62% surge.

Microsoft Corporation, MSFT

The primary concern centers on Microsoft’s rapidly expanding capital expenditure budget. During the first quarter of its current fiscal year, the company spent $34.9 billion on CapEx, well above its earlier guidance of $30 billion.

About half of that spending went toward GPUs and CPUs needed to power cloud and AI workloads. Management has warned that CapEx will continue rising sequentially and that fiscal 2026 growth will exceed fiscal 2025 rates.

The worry isn’t about Microsoft’s ability to execute its strategy. Instead, investors are questioning whether the scale and speed of spending will generate returns quickly enough to justify the massive investment.

Fears of an AI bubble are circulating across the market. Even industry leaders like Microsoft aren’t immune to sentiment-driven pullbacks when spending numbers climb this high.

Strong Revenue Growth Fails to Impress

Despite the stock’s lackluster performance, Microsoft’s financial results remain solid. The company reported first quarter revenue of $77.7 billion, up 18% from the previous year.

Operating income climbed 24% while adjusted earnings per share reached $4.13, up 23% after accounting for OpenAI investments. Free cash flow increased 33% to $25.7 billion, showing the company can fund growth while returning value to shareholders.

Commercial bookings jumped 112%, driven largely by Azure commitments from OpenAI. The company continues seeing growth in deals exceeding $100 million across both Azure and Microsoft 365.

Microsoft’s commercial remaining performance obligations hit $392 billion, up 51% year-over-year. This figure has nearly doubled over the past two years, providing strong visibility into future revenue.

Microsoft Cloud revenue reached $49.1 billion, up 26% year-over-year. Within that segment, Intelligent Cloud generated $30.9 billion in revenue, growing 28%.

Azure Leads Growth Momentum

Azure and other cloud services continued accelerating with revenue rising 40%. The growth reflects strong demand from Microsoft’s largest customers and continued strength in core infrastructure offerings.

The company has secured an additional $250 billion in Azure commitments from OpenAI. These figures don’t yet appear in the reported numbers, suggesting further upside in future periods.

Demand for Azure AI services remains robust. Microsoft is expanding capacity to ease supply constraints and support further revenue expansion.

Analysts maintain a Strong Buy consensus rating on Microsoft stock despite recent price weakness. The debate on Wall Street centers on whether multibillion-dollar AI infrastructure investments can drive another leg higher in share prices.

Some strategists argue AI revenue remains underappreciated by the market. Others warn that elevated expectations may already be priced into shares, leaving limited upside until margins improve.

Management expects capital expenditure growth to accelerate in fiscal 2026, reflecting a multi-year commitment to scaling AI and cloud capabilities.

Summary: Microsoft stock trails peers as $34.9 billion AI spending raises bubble concerns despite 18% revenue growth and strong Azure momentum.

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