Microsoft's $83.09 Billion Decision Could Shape What Happens Next

Core Insights - Microsoft reported a significant increase in capital expenditures (CapEx) of $29.88 billion for Q2 FY2026, marking an 89% year-over-year increase from $15.80 billion, raising investor concerns about the pace and payoff of its AI infrastructure investments [1] - The total CapEx over the last four quarters reached $83.09 billion, exceeding the previously stated $80 billion commitment for AI infrastructure, indicating a structural shift in spending patterns [1] - Despite strong revenue growth of 17% year-over-year to $81.27 billion, and a notable increase in Azure and Microsoft Cloud services, the stock price fell 14.6% post-earnings announcement, reflecting investor skepticism about the sustainability of growth amid rising expenditures [1] Financial Performance - Microsoft’s operating cash flow surged 60% to $35.76 billion, but free cash flow decreased by 9.3% to $5.88 billion due to high CapEx consumption [1] - Non-GAAP EPS was reported at $4.14, surpassing the consensus estimate of $3.91, while the commercial remaining performance obligation increased by 110% to $625 billion, indicating strong future revenue potential [1] - The stock price declined from $452.04 to $385.83, significantly below its 200-day moving average of $486.88, highlighting market concerns about the effectiveness of the CapEx strategy [1] Market Reaction and Analyst Sentiment - Despite the strong earnings report, the market reacted negatively, with Microsoft shares experiencing a sharp decline, contrasting with the overall market performance [1] - Analyst sentiment remains largely positive, with 57 out of 58 analysts maintaining a Buy or Strong Buy rating, and a consensus target price of $596, although prediction markets suggest only a 7% probability of the stock closing above $405 by month-end [1] - The upcoming Q3 FY2026 earnings report will be critical for assessing whether Azure growth and revenue from AI-linked services can offset the drag on free cash flow caused by high CapEx [1]