Microsoft's AI Bet: A $115.9 Billion Question

Microsoft's (NASDAQ:MSFT) recent surge in stock price has been fueled by its growing Azure business, which crossed $100 billion in annual revenue for the first time. The company's AI capex bet of $115.9 billion is a major concern, with some fearing it could become the largest overbuild in tech history.

The 24/7 Wall St. price target for Microsoft is $609.58, implying an 18.7% upside from its current price of $513.53. The rating is a buy with high confidence at 90%, according to the firm's analysts. Azure's 43% growth and 45% guidance ahead are key drivers behind this optimistic outlook.

However, there are concerns about Microsoft's capital spending intensity, which has increased by 79.62% to $115.9 billion in FY26. Free cash flow fell 6.46% for the year, raising questions about whether the company's AI investments will yield a return worthy of its mega-cap multiple.

Microsoft's bull case relies on Copilot monetization accelerating alongside Azure supply catching up to demand. The company has seen significant growth in commercial RPO, which ballooned to $678 billion, up 84%. Q1 FY27 Azure guidance calls for approximately 45% constant-currency growth.