The relentless expansion of artificial intelligence is forcing Microsoft to rethink its hardware strategy. Faced with a severe capacity crunch in its Azure cloud business, the software giant has signed on Qualcomm as a new chip supplier, turning to cheaper, smartphone-derived processors to keep infrastructure costs in check.
Qualcomm will supply Microsoft and Meta with a new category of “High Bandwidth Compute” chips that use lower-cost memory originally developed for mobile devices. The aim is to replace the expensive high-performance memory found in existing AI systems and break Nvidia’s near-total dominance in data center silicon. Until now, Nvidia has been the go-to provider for AI workloads, but Microsoft is aggressively seeking cheaper alternatives as demand outstrips supply.
Azure revenue surged 40% in the latest quarter, part of a broader cloud segment that grew 29%. Overall, Microsoft posted revenue of nearly $83 billion for the period, a gain of 18%, while net profit rose to $31.8 billion. Those are stellar numbers by any standard, yet the stock has been pummeled. Shares closed Wednesday at €321.75, bringing the year-to-date decline to more than 20%. The stock is now trading just above its 12-month low of around €309 and sits more than 16% below its 200-day moving average — a bearish technical signal confirmed by a relative strength index of 35.8.
Should investors sell immediately? Or is it worth buying Microsoft?
At €478, the 52-week high is now a distant memory, with shares roughly 33% below that peak. Investors are not penalizing Microsoft for weak execution; the business is clearly humming. Instead, the selloff reflects a deepening unease about the company’s soaring capital spending and the uncertain payoff from its AI bet.
Microsoft has earmarked roughly $190 billion in capital expenditure for calendar 2026, with about $25 billion of that directed at more expensive components. The company is under pressure to prove that these enormous outlays will generate durable returns rather than erode margins. The partnership with Qualcomm is a clear sign that management is trying to diversify its supply base and rein in the cost of building out AI infrastructure. But the market is demanding concrete evidence that the billions poured into cloud and AI servers will translate into measurable profit growth.
Two broader headwinds are also weighing on the stock. First, rising expectations of a Federal Reserve rate hike — traders now see at least one increase by December — are compressing valuations for high-growth tech names. Higher rates diminish the present value of future earnings, a particular problem for capital-intensive companies. Second, the market is increasingly treating Microsoft not as a high-margin software leader but as a capital-intensive infrastructure operator. The days of being a safe haven are over; the next few months will require hard proof that the Qualcomm deal and other cost-saving measures can preserve margins without sacrificing growth.
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