Microsoft’s AI Capex Problem Just Got Harder for Bears to Defend
Ghazal AhmedWed, September 2, 2026 at 1:20 PM GMT+3 3 min read
Microsoft Corporation (NASDAQ:MSFT) reported its Q42026 results on July 29, beating top and bottom lines driven by robust cloud and infrastructure demand. On September 1, BofA Securities analyst Tal Liani raised the price target on the stock to $600.00 (from $500.00) while maintaining a Buy rating, asserting that the tech giant's massive spending has begun translating into stronger growth.
The firm increased its price target based on 28x their CY27E P/E versus 24x previously, a reflection that Microsoft's massive AI spending is now reaping results investors have been looking for.
For the fiscal year ended June 30, the tech giant spent nearly $116 billion on capital expenditures, a 79.62% jump driven by cloud and AI infrastructure. Free cash flow, as a result, fell 6.46% to $66.987 billion as the heavy investments weighed on near-term cash.
BofA's willingness to apply a higher multiple is a testament that the tech giant's spending is now showing up as accelerating revenue.
Pixabay/Public Domain
Azure Is Doing the Heavy Lifting
Azure is undoubtedly serving as the heavy-duty engine for Microsoft stock. For fiscal year 2026, Azure crossed $100 billion in annual revenue for the first time. This is indeed a reflection of the massive enterprise demand for artificial intelligence.
Analyst Tal Liani noted how Azure growth has accelerated from 39% in the third quarter of 2026 to 43% in the fourth quarter, while management now guides 45% growth for the first quarter of fiscal 2027. The note is backed by management commentary which stated that customer demand for Azure and AI infrastructure continues to outpace available capacity.
While Chief financial officer Amy Hood noted customer demand continuing to outpace available capacity ongoing efficiency gains and faster deployment of infrastructure allowed the company to monetize additional capacity during the quarter.
Copilot, BofA noted, adds another layer to MSFT's story. Paid M365 Copilot seats exceeded 30million, it noted, with net additions more than doubling QoQ, while RPO increased 84% YoY.
The Capex Bear Case and Hedge Fund Analysis
Even though Microsoft has now started to prove its monetization ability, the capex concerns still exist. The company's massive capital expenditure, around $41 billion in the quarter, shows how intense financial commitment is required to scale AI.
Chief Financial Officer Amy Hood now guides capital expenditures near $175 billion, which means that the spending wave isn't ending any time soon either.
Hedge fund filings from Insider Monkey's data base also shows mixed interest. For the second quarter of 2026, 272 hedge funds held positions in the stock, down from 282 in the prior quarter.
Pershing Square increased its position by roughly 10% in Q2 to 6.21 million shares, Hudson Bay Capital by 43% to 1.04 million shares. On the other hand, D.E. Shaw cut its stake by roughly 42% to 3.56 million shares.
Overall, BofA's note doesn't explicitly say that the capex bear case for Microsoft has disappeared, but the burden of proof has shifted. Three straight quarter of Azure acceleration and an 84% RPO jump makes it harder to argue that AI demand is absent, but it can also not ignore Microsoft's yet fast-tracking spending wave.
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