Investors digested earnings reports from some of the largest tech companies in the past two weeks. The all-important capital expenditure guidance moved higher for this cohort, reflecting perhaps both ambitious spending desires and tangible profits. Microsoft and Amazon detailed some of the early payoffs they’re seeing, though Alphabet and Meta investors felt a bit queasy.
CapEx Estimates Move Higher (Again)
The capital expenditure boom that is being led by the Magnificent Seven group of stocks is…well…magnificent. As detailed in my tech earnings preview, FactSet consensus estimates for CapEx spending in 2026 from these companies totaled $723 billion, representing a whopping 75% growth from 2025. As shown below, this estimate was revised higher to now total $754 billion, or 83% growth from 2025! Further, 2027’s estimated spending increased from $892 billion (or 23% growth) to now $1.02 trillion (or 35% estimated growth)!
It’s clear the spending boom is expected to continue. And the companies are starting to show how they’re monetizing all this spend.
Microsoft’s Magic
Microsoft was the best-performing stock of this cohort during this earnings season, with its stock returning +15.5% the day after its earnings report. The company reported that its capital expenditure-heavy Azure business grew revenues +43% year over year (when FactSet consensus was for 40% growth), and the company guided for Azure to grow revenues +45% year over year in this coming quarter. Additionally, Microsoft’s enterprise software business grew revenues +14% year over year, above FactSet consensus expectations of +12% growth year over year.
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In short, Microsoft delivered clean revenue beats across both its cloud and software businesses.
The direction and magnitude of these revenue beats ran counter to prevailing narratives. Investors may have previously believed that these two segments could not grow harmoniously – that growth exceeding expectations in Azure may power AI-competitors to deliver better software tools that undermine Microsoft’s enterprise software business. But this quarter’s results may dismiss those fears.
These results also lend credence to Microsoft’s management team seeing a return on investment in all this capital spending. Microsoft’s Magic may lie in its ability to design unique data centers that power AI tools, while also using these investments to enhance its own products and increase value to its customer base. At least that’s what investors may be thinking as we exit this earnings season.
For more content by Blake Anderson, CFA®, Director, Portfolio Management, click here.
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