MSFT Rides on AI Strategy: Can Rising CapEx Drive Future Growth?

Microsoft's MSFT aggressive AI strategy has become the cornerstone of its long-term growth vision, and a significant part of this approach hinges on soaring capital expenditures. In the fourth quarter of fiscal 2025, the company reported Azure cloud revenues up 27% year over year, driving overall cloud sales to $46.7 billion. To sustain this momentum, Microsoft is ramping up investments in AI infrastructure, signaling confidence in the transformative potential of AI.

The surge in demand for AI-powered solutions is fueling this push. Tools like Azure OpenAI, Microsoft 365 Copilot and GitHub Copilot are becoming integral for enterprises looking to embed generative AI into their workflows. The company recently integrated OpenAI’s GPT-5 across Microsoft 365, GitHub, Visual Studio and Azure AI Foundry, enabling smarter reasoning, real-time model routing and advanced coding. These innovations boost productivity and deepen customer engagement, solidifying Azure’s AI leadership.

To maintain its competitive edge, Microsoft is investing heavily in data centers, GPUs and AI accelerators. CapEx (Capital Expenditure) hit $24.2 billion in the fiscal fourth quarter and is projected to reach a record $30 billion in the first quarter of fiscal 2026, primarily for AI infrastructure. This spending aims to position the company as the backbone of global AI adoption, a market expected to reach trillions over the next decade.

Though the short-term costs are heavy, the long-term picture looks promising. Zacks’ forecast of 14% annual revenue growth for 2026 and 14.4% for 2027 underscores how Microsoft’s AI-fueled Capex could become the foundation of its future success.

Comparing AI CapEx: Microsoft & Its Rivals

Meta META is intensifying its AI CapEx race with Microsoft, projecting $66-$72 billion in 2025 spending and signaling ambitions for significantly larger, long-term investments. Meta’s dominance across Facebook and Instagram, coupled with AI-driven ad targeting, strengthens profitability and engagement. Founder-led flexibility allows Meta to make bold infrastructure bets. However, such heavy CapEx risks margin pressure and execution hurdles. While Microsoft leans on enterprise and cloud diversification, Meta’s AI payoff is tied primarily to advertising efficiency within its vast social ecosystem.

Alphabet GOOGL is intensifying its AI CapEx battle with Microsoft, lifting 2025 spending to $85 billion to expand cloud and data infrastructure. Alphabet’s strength lies in its dominance of search and digital ads, enhanced by AI models like Gemini and proprietary chips. With 32% cloud growth, Alphabet is leveraging AI to strengthen both advertising and enterprise adoption. While Microsoft leads in enterprise-cloud integration, Alphabet’s competitive edge remains its unmatched scale in search, ads and AI-driven monetization.

MSFT’s Share Price Performance, Valuation & Estimates

MSFT shares have appreciated 20.3% in the year-to-date period, outperforming the Zacks Computer – Software industry and the Zacks Computer and Technology sector’s growth of 16.5% and 12.4%, respectively.

MSFT’s YTD Price Performance

From a valuation standpoint, MSFT stock is currently trading at a forward 12-month Price/Sales ratio of 11.49X compared with the industry’s 8.46X. MSFT has a Value Score of D.

MSFT’s Valuation

The Zacks Consensus Estimate for MSFT’s fiscal 2026 earnings is pegged at $15.35 per share, up 2.5% over the past 30 days. The estimate indicates 12.54% year-over-year growth.

Microsoft currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research