Microsoft’s AI Ambitions: A High-Stakes Bet on Cloud Growth

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Microsoft's latest quarterly earnings report delivered a familiar story of robust financial performance, yet investor attention has been sharply diverted toward a single, staggering figure: the company's unprecedented capital expenditure. As the tech giant pours record sums into building its artificial intelligence infrastructure, the market is grappling with a pivotal question about the timeline for a return on this massive investment.

For its fiscal second quarter of 2026, Microsoft surpassed analyst expectations on both revenue and profit. The company posted revenue of $81.27 billion, representing year-over-year growth of 16.7%. Earnings per share came in at $4.14.

Despite these solid results, the financial community focused intently on the cost of the company's aggressive AI push. Quarterly capital expenditures soared to $37.5 billion, a jump of approximately 66% compared to the same period last year. These funds are primarily directed toward expanding data center capacity and AI capabilities. The underlying anxiety for shareholders is whether this spending sprint is outpacing the monetization of these technologies through Microsoft's cloud services.

Following the earnings release on January 28, the company's shares experienced a notable sell-off before partially recovering. The stock closed the week at $435.31.

Cloud Growth: Solid but Falling Short of Lofty Expectations

The pace of expansion in Microsoft's cloud business has become a critical focal point. The Intelligent Cloud segment, which includes the Azure platform, grew 28.8% to reach $32.9 billion in revenue. However, this performance failed to fully satisfy the market, with some investors having anticipated even greater acceleration for Azure. This has sparked a debate over whether the company's massive infrastructure build-out can generate corresponding revenue momentum in the near term.

A notable bright spot emerged within this discussion: Microsoft disclosed a $750 million cloud agreement with AI startup Perplexity. The deal stipulates that Perplexity will utilize Azure infrastructure, serving as a tangible signal that demand for AI computing capacity remains strong. This evidence of sustained client interest is crucial, even as investors adopt a more skeptical view regarding the near-term profitability of this expansion cycle.

Analyst Sentiment: Adjusted Targets Amidst Enduring Confidence

In the wake of the January earnings, several major financial institutions revised their price targets for Microsoft while maintaining their positive overall ratings.

• Barclays reduced its target from $610 to $600, maintaining an "Overweight" rating. The firm suggested that Azure's growth rate currently has limited room for further acceleration.
• JP Morgan lowered its target from $575 to $550, also keeping an "Overweight" recommendation, citing ongoing capacity constraints.
• Goldman Sachs issued a $600 price target.
• Jefferies provided the most optimistic outlook with a $675 target.

The consensus among analysts remains firmly in "Buy" territory. The average price target of approximately $611 indicates that many experts continue to assign Microsoft a significantly higher valuation. This enduring confidence persists despite the short-term concerns swirling around expenditure levels and cloud growth dynamics.

As trading resumes, the central narrative for Microsoft is clear. The market's willingness to view these colossal capital investments as a strategic opportunity—rather than a burdensome cost—hinges entirely on the company's ability to convincingly translate its AI spending into accelerated cloud revenue growth and clear profit leverage.

@ boerse-global.de | US5949181045 MICROSOFT’S