While Microsoft continues to post strong operational results, its share price faces persistent headwinds. The primary concern for the market is not the company’s current performance but the substantial cost of funding its future expansion. The enormous capital required to build artificial intelligence infrastructure is creating investor unease over the timeline for a tangible return on these multibillion-dollar bets.
Robust Earnings Overshadowed by Soaring Costs
Microsoft’s fiscal second-quarter results, released on January 28, demonstrated continued corporate strength with significant growth across key metrics:
- Revenue reached $81.3 billion, marking a 17% year-over-year increase.
- Operating income grew 21% to $38.3 billion.
- The Azure and cloud services segment expanded by 39%.
- Non-GAAP earnings per share came in at $4.14, a rise of 24%.
However, a critical figure dampened the positive report: capital expenditures (capex) surged to $37.5 billion. This represents an increase of approximately 66% compared to the same period last year. This accelerating investment pace is fueling doubts that the payoff from AI spending may take longer to materialize than the market initially anticipated. The stock’s recent performance reflects this skepticism, with shares declining 12.73% over the past 30 days.
Institutional Investors Send Mixed Signals
Recent regulatory filings from major funds reveal a lack of consensus among large stakeholders. Based on disclosures reported on February 14, Soros Fund Management increased its stake by 161,298 shares. In contrast, Altarock Partners moved in the opposite direction, reducing its position by a substantial 486,910 shares. Triple Frond Partners also sold 32,674 shares.
Should investors sell immediately? Or is it worth buying Microsoft?
This divergence in positioning among institutional investors underscores the prevailing uncertainty about how to balance Microsoft’s high valuation against its ongoing wave of infrastructure investments in the near term.
Analyst Downgrade and Steady Shareholder Returns
Adding to the pressure, Stifel analyst Brad Reback downgraded Microsoft’s stock from Buy to Hold in early February. He simultaneously reduced his price target significantly to $392, down from a previous $540. Reback cited overly optimistic assumptions for the 2027 fiscal year as a key reason, projecting the company’s capex could reach $200 billion—well above the consensus estimate of $160 billion.
Amidst these concerns, Microsoft’s commitment to returning capital to shareholders remains firm. The company declared a quarterly dividend of $0.91 per share. The ex-dividend date is February 19, 2026, with payment scheduled for March 12, 2026. Furthermore, during fiscal Q2, Microsoft returned $12.7 billion to shareholders through dividends and stock buybacks, a 32% increase year-over-year.
The central challenge for Microsoft moving forward is less about sustaining growth and more about its ability to clearly communicate and manage its escalating AI investments. How the company guides the market through the coming quarters will be crucial in rebuilding confidence in the profitability timeline of its ambitious strategy.
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