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Investing.com -- Shares of Microsoft jumped over 14% at the open on Thursday after the world’s fourth-largest company issued strong current quarter revenue guidance and maintained its expected capital expenditures for calendar year 2026.
The cloud and artificial intelligence giant earlier delivered a quarterly top- and bottom-line beat, helped by better-than-expected revenue growth in its cloud business.
Barclays analysts see enough evidence in FQ4 results for investors to "revisit MSFT shares" going forward after 19.3% YTD drop.
"The company is delivering better Azure and finally better Office growth, while also not surprising negatively on its capex outlook and FCF targets," analysts wrote.
"Given the different set-up for other main players (larger AI investments), we see a positive reaction."
Microsoft first data center giant to not raise spending plans
Coming into the quarterly report, all eyes were on Microsoft’s capital expenditures guidance, at a time when concerns have soared over the billions of dollars being poured into artificial intelligence infrastructure, or the combined hardware and software stack needed to handle massive data and computing power used to build and train AI processes. Investors are worried that the returns from these investments are taking too long and will be too little.
Alphabet last week raised its capital expenditures forecast to as much as $205 billion, as the Google-parent also pours massive amounts of money into AI infrastructure. The search giant also went cash flow negative for the first time as it spent on AI servers and building out data centers.
A furious advance in the AI trade earlier this year helped Wall Street shake off the Middle East conflict and return to record levels. However, concerns over valuations and spending have been rising since mid-June, with chip stocks - a main driver of the AI rally - especially suffering. Meanwhile, Microsoft stock has been the second-worst YTD performer in the blue-chip Magnificent Seven club, having slid 19.3%.
MSFT on Wednesday said its investment expectations for calendar year 2026 remained unchanged. In April it had said it anticipated capex of about $190 billion, and while the latest forecast was reduced to $175 billion, the figures remain comparable after reflecting the impact of a change in Microsoft’s expected useful life of data centers and office buildings.
Top boss Satya Nadella in the earnings conference call said 31 new data centers had been added across five continents in the quarter, bringing the total to 88 this year.
For its fiscal Q4 2026, capex increased 70% Y/Y to $41 billion, missing estimates of $42.37 billion as cited by Reuters. The rise was largely to support customer demand for cloud and AI offerings, with roughly two-thirds of capex for short-lived assets such as central processing units and graphics processing units.
For its fiscal Q1 2027, MSFT sees total company revenue of $89.85 billion to $90.95 billion.
Annual Azure revenue tops $100 billion for the first time
Looking at Microsoft’s quarterly top- and bottom-line performance, the tech behemoth earned $4.74 per share on an adjusted basis on revenue of $90.01 billion. Analysts had been expecting a profit of $4.24 per share on revenue of $87.61 billion.
Revenue at the firm’s Azure cloud computing services business jumped 43% Y/Y, beating estimates of 39.98% growth as compiled by Reuters citing Visible Alpha. Overall quarterly Microsoft Cloud revenue increased 27% Y/Y to $59.30 billion.
"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.
"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.
According to Jake Behan, head of capital markets at Direxion, Microsoft’s performance showed what investors were hoping for: "strong Azure growth alongside evidence that AI demand remains robust."
"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.
"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.
(Anuron Mitra contributed to this report.)
