Microsoft’s AI Capex Problem Just Got Harder for Bears to Defend

Microsoft's recent capital expenditures (Capex) have posed a challenge for doubters of the company's AI prospects. On July 29, Microsoft reported Q4 2026 results, which exceeded expectations driven by strong cloud and infrastructure demand. BofA Securities analyst Tal Liani raised the price target to $600.00, citing the company's massive spending yielding growth.

In FY 2026, Microsoft invested nearly $116 billion in Capex, a 79.62% increase, primarily due to cloud and AI infrastructure. Free cash flow fell 6.46% to $66.987 billion as a result of these investments. Azure reached a milestone in FY 2026, crossing $100 billion in revenue for the first time, fueled by enterprise demand for AI.

The company's growth in Azure has accelerated, with a 43% increase in Q4 2026 compared to 39% in Q3 2026. Copilot's adoption has also surged, with paid M365 Copilot seats exceeding 30 million, and net additions more than doubling quarter-over-quarter. Despite these positive signs, Microsoft's Capex remains a concern, with the company's massive financial commitment to AI scaling.

Insider Monkey data shows mixed interest from hedge funds, with 272 holding positions in Q2 2026, down from 282 in the prior quarter, and D.E. Shaw cutting its stake by 42%. The note suggests that while AI demand appears stronger, Microsoft's fast-tracking spending wave continues, making it difficult to dismiss the Capex bear case.