Microsoft's AI Capital Expenditure Under Scruture Ahead of Q4 Earnings Report
As Microsoft prepares to report its fiscal fourth-quarter results, UBS has maintained a 'Buy' rating but adopted a more cautious stance due to anticipated increases in capital expenditures. The firm noted strong demand for Azure and Amazon Web Services but highlighted potential constraints from external customer capacity issues and early AI token optimization efforts that could limit guidance upside. UBS raised its fiscal 2027 capex estimate for Microsoft to $261 billion, driven by model training workloads and rising memory costs. Investors are increasingly focused on AI infrastructure spending following recent results from Oracle and Google. On the productivity side, UBS is more optimistic about Microsoft 365 growth due to Copilot improvements and pricing changes. Despite trimming its price target for Microsoft shares to $480 from $510, reflecting weaker sentiment toward AI stocks, UBS still sees value in Microsoft based on its potential for AI monetization. The stock has underperformed peers this year, trading at around $391 as of Monday.
Topics: AI capital expenditure cloud demand Microsoft earnings