Key Points
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Microsoft expects about $190 billion of capital expenditures in calendar 2026, up 61% from last year.
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Management said about $25 billion of the spending reflects higher component prices, not added capacity.
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Azure and other cloud services revenue grew 39% in constant currency last quarter, with demand still exceeding supply.
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Microsoft (NASDAQ: MSFT) told investors back in April what this year would cost. The software giant expects about $190 billion of capital expenditures in calendar 2026, up 61% from 2025, as it races to build the data centers its cloud computing and artificial intelligence (AI) businesses demand. Chief financial officer Amy Hood added a detail that made the number sting a bit more: about $25 billion of it simply reflects higher component prices, as memory and storage costs surge across the industry.
On Wednesday, July 29, Microsoft reports results for the fourth quarter of its fiscal year. The report is the next test of the bargain underneath all that spending — whether demand for Azure, the cloud business at the center of this build-out, keeps growing fast enough to pay for it.
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So far, it has. Here’s a closer look at both sides of the ledger heading into Wednesday’s report.
Image source: Getty Images.
What $190 billion commits Microsoft to
The number deserves some sizing. In its fiscal third quarter of 2026 (ended March 31, 2026), Microsoft’s capital expenditures, including finance leases, were $31.9 billion, up 49% year over year. Management guided for over $40 billion in the quarter it reports Wednesday.
And the calendar-year plan of about $190 billion works out to well over half of the revenue the company’s current pace implies for a full year.
The component-price detail deserves its own mention, too. About $25 billion of Microsoft’s 2026 outlay buys no additional capacity. It just covers the higher cost of parts — the memory and storage whose prices have surged across the industry since last fall. For a company spending at this scale, supply chain inflation is now, in essence, in its own right.
Of course, capital spending doesn’t stay on the balance sheet forever. As data centers come online, depreciation flows into the income statement and can weigh on margins for years to come. The more Microsoft spends today, the more earnings its cloud business has to deliver tomorrow just to stand still.
The number that has to keep up
Now, for the demand side, which is the reason the spending hasn’t spooked me yet.
Azure and other cloud services revenue rose 40% year over year in fiscal Q3, or 39% in constant currency — an acceleration from 38% constant-currency growth in fiscal Q2. And management guided for 39% to 40% constant-currency growth again in fiscal Q4. A business already at enormous scale is still speeding up, not slowing down.
Even more, supply remains the bottleneck, not demand. Hood said in April that the company expects “to remain constrained at least through 2026.” Microsoft’s AI business, meanwhile, has reached an annual revenue run rate of $37 billion, up 123% year over year.
Profits are absorbing the spending so far, as well. Fiscal third-quarter revenue climbed 18% year over year to $82.9 billion, with Microsoft Cloud accounting for $54.5 billion of it, up 29%. Operating income increased 20% to $38.4 billion, while earnings per share jumped 23% to $4.27. This isn’t a company sacrificing its bottom line to fund a build-out. At least not yet.
For the fiscal fourth quarter, management guided for revenue of $86.7 billion to $87.8 billion, which implies 13% to 15% year-over-year growth. The headline numbers will come first, but Azure’s growth rate and the capacity commentary around it may matter more for how the stock reacts.
That combination is what makes Wednesday’s report a genuine test. If Azure grows at or above the guided range and management still describes demand outrunning supply, the $190 billion keeps looking like capacity the market has already spoken for. But if Azure slips below the high-30s while spending accelerates, the margin math starts to tighten, and the stock could get repriced quickly.
The stock, for its part, gives investors more room than it did a year ago. Shares closed Friday at $381.70, down about 31% from their 52-week high of $555.45, and they trade at about 23 times earnings. Given 18% revenue growth and 23% earnings-per-share growth, that multiple arguably doesn’t demand perfection — a rare thing among the big AI spenders.
So, I like the stock. Of course, my view would change if Azure’s constant-currency growth slipped meaningfully below the guided range while capital spending kept climbing. Short of that, Microsoft’s $190 billion looks less like a gamble on future demand and more like a bill for demand it already has.
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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
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