Microsoft's AI Spending Under Microscope as Earnings Loom

Microsoft is set to report its Q4 earnings on Wednesday, as investors continue to scrutinize the company's massive investments in AI. The tech giant has seen its shares decline over 18% since the start of the year, with concerns about aggressive capital expenditure and its impact on free cash flow.

The company's rivals, Amazon and Google, have had mixed performances during this period, with Amazon up less than 1% and Google up more than 3%. Microsoft, however, is facing capacity constraints, making it unable to meet demand for its AI services. Investors may be hesitant to see further spending increases, even if they help alleviate these constraints.

Last week, Alphabet's announcement of increased capital expenditure sent its stock tumbling over 6%. For the quarter, Microsoft is expected to spend $35.2 billion on capex excluding capital leases, a 106% year-over-year increase. To calm spending-related jitters, Azure cloud growth needs to reach 39-40%, according to BofA Global Research's Tal Liani.

Microsoft is projected to post earnings per share of $4.25 and revenue of $87.7 billion, surpassing last year's Q4 figures of $3.65 and $76.4 billion. The company's Intelligent Cloud segment is expected to bring in $38.1 billion, a 12% increase from the same period last year.