Microsoft’s AI Spending Remains Strong Despite Stock Drop

Microsoft’s latest earnings report confirms that AI investments remain a top priority, even as the company faces short-term stock declines. While cloud revenue fell short of expectations, capital expenditures on AI infrastructure continue to soar—sending a clear message that Big Tech is not slowing down on AI spending.

Microsoft’s Q2 Results: A Mixed Performance

Microsoft (MSFT) shares fell more than 6% after issuing a weaker-than-expected revenue outlook for the upcoming quarter. The software giant, however, exceeded Wall Street’s fiscal second-quarter expectations, reporting earnings of $3.23 per share on $69.63 billion in revenue—both figures surpassing analyst estimates.

Despite strong overall results, the stock decline was largely driven by a slowdown in Azure and cloud services growth, which increased 31% year-over-year, down from 33% in the previous quarter. Additionally, Microsoft’s Chief Financial Officer, Amy Hood, warned that revenue for the current quarter is expected to range between $67.7 billion and $68.7 billion, falling short of analyst predictions of $69.78 billion.

AI Spending Is Not Slowing Down

While some investors reacted negatively to the revenue outlook, analysts believe Microsoft’s massive capital expenditures on AI signal long-term growth.

• The company spent $22.6 billion in the second quarter on infrastructure, with plans to maintain or increase this level in the coming quarters.
• According to KeyBanc Capital Markets analyst Jackson Ader, Microsoft’s continued AI investments indicate Big Tech is not pulling back on AI spending.
• AI-related expenses are rising due to the uncertainty around computational demands, making it difficult to predict return on investment (ROI) in the short term.

Competition from China’s DeepSeek

Microsoft’s earnings report comes amid rising competition in the AI sector. DeepSeek, a Chinese AI startup, recently introduced a powerful model that some believe could challenge U.S. tech giants. The company reportedly trained its AI at a fraction of the cost compared to leading American models.

However, Microsoft CEO Satya Nadella addressed these concerns, noting that DeepSeek’s R1 model is already available through GitHub and Microsoft’s Azure AI Foundry. He also mentioned that DeepSeek’s technology will be integrated into Copilot+ PCs, suggesting that Microsoft may actually benefit from the new AI advancements rather than be threatened by them.

Wall Street Analysts Remain Optimistic

Despite short-term revenue concerns, many analysts continue to view Microsoft as a leader in the AI and cloud computing sectors:

• Goldman Sachs analyst Kash Rangan called Microsoft one of the most compelling AI investment opportunities.
• Bernstein’s Mark Moerdler emphasized that Microsoft has already proven its ability to scale cloud services, and now it is leading in generative AI business.

Looking Ahead

Microsoft’s commitment to AI spending suggests it is positioning itself for long-term dominance in the space. While revenue growth may have slowed, its massive AI investments and cloud expansion continue to attract confidence from analysts and investors alike. With AI integration across multiple platforms, Microsoft remains at the forefront of AI-driven transformation in the tech industry.

More…

• https://www.cnbc.com/2025/01/30/microsoft-stock-slumps-on-disappointing-revenue-outlook.html
• https://finance.yahoo.com/video/microsoft-results-highlight-ai-spending-153900728.html 
• https://www.crn.com/news/ai/2025/microsoft-q2-2025-earnings-cfo-blames-azure-challenges-on-partner-motion-ai-sales-beat-expectations