---
title: "Azure Roars, Copilot Accelerates: Market Concerns Over Microsoft's AI Spending Should Be Put to Rest"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/287490143.md"
description: "Microsoft's third-quarter financial report showed revenue reaching $82.9 billion, a year-on-year increase of 18%, with operating profit growing by 20%. Despite concerns over its $190 billion capital expenditure plan, analysts believe the risks have been priced in, making the current valuation attractive to long-term investors. Microsoft's cloud business revenue was $54.5 billion, a year-on-year increase of 29%, while AI business annualized revenue surpassed $37 billion, growing by 123%, demonstrating strong demand for AI translating into actual revenue"
datetime: "2026-05-25T03:42:04.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/287490143.md)
  - [en](https://longbridge.com/en/news/287490143.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/287490143.md)
---

# Azure Roars, Copilot Accelerates: Market Concerns Over Microsoft's AI Spending Should Be Put to Rest

According to the Zhitong Finance APP, in 2026, as tech giants bet hundreds of billions of dollars on artificial intelligence (AI) infrastructure, Microsoft (MSFT.US) has sent a clear signal to the market with a comprehensive and better-than-expected third-quarter financial report: AI demand is no longer a concern, and large-scale capital expenditures are gradually being converted into tangible revenue.

Although its annual capital expenditure plan of up to $190 billion still raises concerns among some investors, an increasing number of analysts believe that this risk has largely been absorbed by the persistently low stock prices, and the current valuation level provides a very attractive entry point for long-term investors.

**Azure engine roaring, AI monetization capability becomes a reassurance**

The financial report shows that Microsoft's revenue for the quarter reached $82.9 billion, a year-on-year increase of 18%; operating profit grew by 20%, and adjusted earnings per share increased by 21%, reaching $4.27. For a company with a market capitalization exceeding $3 trillion, this is by no means the growth rate of an ordinary mature software company. These figures indicate that Microsoft is still in a phase of high compound growth and is far from becoming an outdated traditional software vendor.

Microsoft's cloud business revenue reached $54.5 billion, a year-on-year increase of 29%, with Azure and other cloud services, as the core growth engine, seeing revenue growth of 40% (39% at constant currency), maintaining a high growth rate that exceeded market expectations. Management stated that demand continues to exceed available capacity in terms of workload, customer base, and geographic distribution. More notably, Microsoft's AI business has achieved an annualized revenue run rate exceeding $37 billion, a staggering increase of 123% year-on-year, responding to external doubts about the commercialization prospects of AI with solid revenue figures.

Remaining performance obligations (RPO) reached $627 billion, a year-on-year increase of 99%, with about 25% expected to be recognized as revenue in the next 12 months. This provides Microsoft with good revenue visibility, although this data needs to be interpreted cautiously—commitments related to OpenAI will affect overall growth rates, and excluding OpenAI factors, the growth rate of commercial RPO would be much lower. Nevertheless, there seems to be little doubt on the demand side.

This strong performance has received widespread recognition on Wall Street. After the financial report was released, Oppenheimer reiterated its "outperform" rating on Microsoft stock. Analysts at TD Cowen, after a recent meeting with Microsoft's investor relations head, also maintained a "buy" rating and a target price of $540, particularly emphasizing Azure's growth prospects. Morgan Stanley had previously expressed confidence in Azure maintaining a high growth range in its forward-looking report, believing that its channel surveys, GPU supply improvements, and chief information officer survey data all released positive signals.

**Copilot business takes center stage, enterprise deployment accelerates to dispel doubts**

For a long time, compared to Azure's dazzling performance, the commercialization process of Microsoft's productivity tool AI assistant Copilot has been a concern in the market. However, the data for this quarter strongly addresses this concern. The number of paid seats for Microsoft 365 Copilot has surpassed 20 million, a year-on-year increase of 250%, marking the fastest growth since its launch The number of customers with over 50,000 Copilot seats has quadrupled year-on-year; Accenture (ACN.US) currently has over 740,000 seats, with several global giants including Bayer (BAYRY.US), Johnson & Johnson (JNJ.US), Roche (RHHBY.US), and Mercedes (MBGYY.US) all committing to deploy over 90,000 seats.

More importantly, the frequency and depth of user engagement have significantly increased. The number of queries per user for Copilot has grown nearly 20% quarter-on-quarter, and management stated that the weekly activity of Copilot has reached its target. Although Microsoft has not disclosed the profitability of Copilot at the product level, the broader trend is evolving towards a "subscription seats + pay-per-use" hybrid model in the fields of production, programming, security, and business applications. The basic subscription provides Microsoft with predictable revenue, while usage-based pricing allows it to profit from higher-intensity AI workloads. GitHub Copilot has taken the lead in this direction. Over time, more Microsoft AI products may follow this model.

UBS analysts noted in a recent report that while maintaining a "buy" rating on Microsoft, they acknowledged that "to truly achieve a higher valuation for this stock, the market outlook around M365/Copilot needs to improve." The strong purchasing willingness and rapid implementation in the enterprise sector this quarter provide a key footnote to break this deadlock.

**$190 billion capital expenditure: a gamble, but also a demand-driven rational layout**

The growth of AI is both a risk and an opportunity. Higher usage means greater revenue potential, but it also requires more GPU, CPU, storage, and data center capacity. The cost per token, resource utilization, and pricing discipline are becoming more critical factors in Microsoft's investment logic than in the earlier software subscription cycle.

Microsoft's capital expenditure in the third fiscal quarter was $31.9 billion, with about two-thirds directed towards short-term assets (mainly GPUs and CPUs), reflecting that a significant portion of the investment in AI infrastructure is going into assets with shorter lifespans, faster update cycles, and greater depreciation pressure.

Operating cash flow was $46.7 billion, a year-on-year increase of 26%; free cash flow was $15.8 billion. Microsoft remains a company with strong cash generation capabilities, but infrastructure spending is taking up a larger share of operating cash flow. Management expects capital expenditure in the fourth fiscal quarter to exceed $40 billion and anticipates that capital expenditure for the calendar year 2026 will be approximately $190 billion, with about $25 billion of the increase directly attributable to rising hardware component prices.

These figures have sparked complex emotions in the market, with Morningstar analysts bluntly stating after the earnings report: "Google (GOOGL.US) has earned the right to massive AI spending, but Microsoft has not yet."

However, contrasting with some investors' concerns, the explanations provided by Microsoft's management demonstrate a clear business logic: the demand for Azure continues to exceed its available computing capacity, and nearly every new piece of infrastructure can be quickly converted into revenue rather than idle assets Microsoft is also improving construction efficiency. Management stated that since the beginning of the year, the "time from delivery to online" for newly added GPUs in its largest region has been reduced by nearly 20%. The inference throughput of the most commonly used Copilot model has increased by 40%. The Maia 200 chip has been deployed in Iowa and Arizona, reportedly achieving over a 30% improvement in tokens per dollar compared to the latest silicon chips in Microsoft's existing hardware. Although this does not eliminate the risk of capital expenditure, spending appears to be driven by demand rather than speculation.

Goldman Sachs holds a positive view on Microsoft's capital expenditure logic, having previously analyzed that Microsoft's computing power allocation is clearly planned, with about 70% used for inference and Azure workloads, and 30% directed towards Copilot and internal R&D. The allocation of newly added GPUs is also trending towards a more balanced distribution, which enhances the certainty of investment. Goldman Sachs even raised Microsoft's target price to $610 as a result.

**Relative valuation advantages emerge, risk-reward ratio reassessed**

In absolute terms, Microsoft is not cheap, but when compared to Google, its valuation appears quite reasonable. Google may be the closest comparable company, as both companies have high-profit core businesses and aggressive investments in AI and cloud infrastructure. However, over the past year, Google's stock price has soared more than 120%, while Microsoft's has fallen nearly 8%, a divergence that does not match their fundamental performance.

If Microsoft's valuation were significantly higher or its operational performance weaker, this gap would be easier to understand. However, according to peer comparison data from Seeking Alpha, Microsoft is lower than Google in terms of FY1 non-GAAP P/E ratio, FY2 P/E ratio, FY3 P/E ratio, forward EV/EBITDA, and price-to-cash flow ratio. Revenue growth rates are roughly comparable, while Microsoft's profit margin levels are superior—Microsoft's EBIT margin is about 46.8%, compared to Google's approximately 32.7%; EBITDA margins are also significantly higher than Google's.

Trefis quantified this gap in its April report: measured by rolling P/E ratio, Microsoft stands at 23 times, while Alphabet reaches as high as 29 times. Considering that Microsoft has a stronger profit margin structure—its EBIT margin is as high as 46.8%, far exceeding Alphabet's approximately 32.7%—this valuation discount seems difficult to fully explain from a fundamental perspective.

Concerns about Microsoft's profit margins mainly focus on the declining trend in its cloud business gross margin. This quarter, influenced by investments in AI infrastructure and increased usage of AI products, the company's overall gross margin and cloud business gross margin both experienced year-on-year declines, standing at 68% and 66%, respectively. Management's guidance for the next quarter's cloud business gross margin also points to around 64%. If this decline continues into the next quarter, it may be seen as a warning signal.

However, thanks to effective operational cost control and personnel optimization (with a year-on-year decrease in the number of employees), Microsoft's overall operating profit grew by 20%, and the operating profit margin slightly increased to 46%. Furthermore, management expects the operating profit margin for the full fiscal year 2026 to still increase by about 1 percentage point year-on-year Despite the ongoing capital expenditure race in the AI field being a long-term issue looming over tech giants, and the short-term pressure on gross margins being significant, for Microsoft, its investment in AI is showing a closed loop from demand confirmation to revenue realization. As Azure continues to roar forward, Copilot accelerates its rollout, and relative valuation advantages begin to emerge, the market may be re-pricing this software giant. As some bullish analysts have stated, after a prolonged period of stock price consolidation and relative undervaluation, the risks associated with AI capital expenditure may no longer be a variable that requires excessive panic

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