The software giant is navigating a delicate transition. On one side, record cloud growth and a restructured partnership with OpenAI promise strategic clarity. On the other, a brutal cash flow squeeze and a radical change to how developers pay for AI tools are testing investor patience. Microsoft’s stock, trading around $352 (€352), sits roughly 25% below its 52-week peak of $467, having lost nearly 13% since January.
The New OpenAI Rules of Engagement
The most consequential strategic move in recent weeks is the fundamental rewrite of Microsoft’s alliance with OpenAI. The revised agreement, finalized in late April, strips away a key exclusivity clause. OpenAI can now sell its products through any cloud provider—including rivals Amazon and Google. While Azure remains the preferred partner, its monopoly on OpenAI’s compute is gone.
For Microsoft’s shareholders, the financial mechanics have shifted markedly. The company will no longer pay a revenue share to OpenAI. Instead, payments from OpenAI to Microsoft will continue through 2030, capped but insulated from the pace of the AI firm’s technological breakthroughs. Crucially, a contentious clause has been eliminated: OpenAI could previously have halted payments if it declared itself a developer of artificial general intelligence. That risk has now evaporated. Microsoft retains a license to OpenAI’s models through 2032.
Analysts view the overhaul as pragmatic. Microsoft is no longer obligated to finance OpenAI’s entire data-center capacity. That capital can now be redirected into Copilot and Azure products. Internally, the company is already diversifying its model mix—Anthropic’s Claude is running alongside OpenAI models in 365 Copilot.
Copilot Goes Pay-as-You-Go
The era of flat-rate AI pricing is ending. Starting in June 2026, Microsoft is overhauling how it charges for GitHub Copilot, moving from a flat subscription to a consumption-based model. The shift is a direct response to soaring compute costs. Internal data shows that weekly operating expenses for GitHub Copilot have nearly doubled since the start of the year. Previously, a short chat query cost the same as hours of autonomous coding.
Under the new system, every action is tracked. Inputs, outputs, and cached data consume tokens, which Microsoft converts into “AI credits,” with one credit equal to one US cent. Many developers are anxious about unpredictable bills and diminishing value for money. Analysts at Directions on Microsoft share those concerns, noting that pay-as-you-go models are notoriously difficult to monitor in daily use.
The real test arrives in June. Microsoft must prove that developers will accept usage-based billing without defecting to competitors.
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Record Revenue, Crushing Capex
The third quarter of fiscal 2026 delivered strong operational results. Revenue climbed 18% to $82.9 billion. Operating income rose 20% to $38.4 billion. Earnings per share hit $4.27, a 23% increase. Azure grew 40%, comfortably beating analyst expectations. AI services generated an annualized run rate of $37 billion—a 123% jump from the prior year.
But the personal computing segment stumbled. Revenue fell 1% to $13.2 billion. Windows sales dropped 2%, and Xbox services declined 5%.
Beneath the headline numbers lies a stark problem. Microsoft generated $46.7 billion in operating cash flow during the quarter but plowed $30.9 billion into infrastructure. Free cash flow fell to $15.8 billion, a 22% decline from the same period last year. Over the past four quarters, the company has spent roughly $97 billion on infrastructure and equipment. Capital expenditures are expected to exceed $40 billion in the fourth quarter, with a full-year plan of around $190 billion for calendar 2026.
The math is striking: $97 billion in spending against $37 billion in annualized AI revenue. Management acknowledged that capacity constraints will persist at least through the end of 2026.
What Comes Next
For the current quarter, Microsoft expects revenue between $86.7 billion and $87.8 billion. Azure is forecast to grow 39% to 40% in constant currency—well above the analyst consensus of 36.9%. Whether that translates into a stock recovery depends on whether the massive infrastructure investments begin to measurably feed Azure growth in the second half of the year.
The market is watching closely. The worst quarter since 2008 is still fresh in investors’ minds. Microsoft’s ability to convert its $190 billion bet into sustainable returns—while keeping developers happy with a new pricing model—will determine whether the stock can reclaim its highs.
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