Microsoft Cloud ROIC Forecasted to Fall Amid AI Infrastructure Spending
JPMorgan estimates that Microsoft's Cloud business return on invested capital (ROIC) will drop from 54% in FY24 to about 37% in FY26. This projected decline is primarily due to rising capital expenditures on AI infrastructure, which are expected to outpace growth in net operating profit after tax (NOPAT).
The cost of serving customers is the main issue here. Microsoft Cloud generated $214 billion in revenue in FY26, a 27% increase year over year. However, the bank notes that AI workloads are 'hungry for computing power,' and this computing power has to be built before it can be rented out.
JPMorgan projects stabilization in the 32%-33% range for five straight fiscal years, FY27 through FY31, implying a new normal rather than a freefall. The bank's estimates suggest that Microsoft Cloud will converge with other hyperscaler cloud businesses around a mid-20s percent ROIC by 2030.