Microsoft Rally Extends as AI Spending Fears Ease

Microsoft has made Azure, Microsoft 365 and its OpenAI partnership central to its generative-AI strategy, requiring a rapid buildout of data centers and computing capacity. The scale of that investment had fueled concern that capital spending was outrunning monetization and eroding the cash-flow profile of a historically asset-light software company. Zacks Investment Research said the latest results offered evidence that the spending is producing tangible returns, helping investors reframe Microsoft’s capacity expansion as disciplined investment rather than unchecked overbuilding.

Microsoft reported fiscal fourth-quarter results on July 29, with revenue rising 18% to $90 billion and Microsoft Cloud sales climbing 27% to $59.3 billion. Free cash flow was $19.6 billion, well above Visible Alpha’s $13.44 billion estimate, even as quarterly capital expenditure jumped 70% to $41 billion. Management kept its calendar-2026 investment plan unchanged, with an accounting change putting the comparable figure near $175 billion. The shares surged about 15% the next day; a roughly $556 consensus target implies close to 30% further upside.