Microsoft's huge AI spending still has investors sweating despite solid cloud growth

"Microsoft's latest earnings report might show promising cloud revenue growth, but capital spending has some analysts concerned. The tech giant's recent earnings report showed capital expenditure reached nearly $35 billion in the first quarter of its 2026 fiscal year, with expectations that this will continue rising across the year. This capex spending was revealed amidst strong earnings growth in key segments."

"According to Forrester principal analyst Tracy Woo, the company's skyrocketing investment in AI has some investors worried that enterprise uptake might not keep pace. "Microsoft delivered on expectations but its level of AI investment is cause for concern," Woo noted. "Average enterprise AI spend is significantly lower than expected - due in part to limited production-ready use cases." "This will change but resizes the question of whether Microsoft has invested too heavily and too early in AI.""

"There are silvering linings here, however. Woo noted that Microsoft appears to still be benefitting from continued "AI hype" while cloud revenue has made "considerable gains" on AWS figures in recent years. These revenue gains on what has long been a key competitor in the cloud computing space not only highlights Azure's growing popularity, but that it's now emerged as a "major revenue engine" for the tech giant."

Capital expenditure reached nearly $35 billion in the first quarter of Microsoft's 2026 fiscal year and is expected to continue rising across the year. Azure cloud revenue grew 40% in the previous quarter and current-quarter expectations remain ahead of estimates. Chief Financial Officer Amy Hood said capacity constraints limited growth amid surging demand for compute. Forrester principal analyst Tracy Woo warned that rapid AI investment outpaces average enterprise AI spending and production-ready use cases, raising concern that Microsoft may have invested too heavily and too early. Microsoft continues to benefit from AI-driven demand, and Azure has made considerable gains on AWS, emerging as a major revenue engine.

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