Microsoft cuts 2026 capex forecast to $175B, trimming $15B

Microsoft Corp. lowered its 2026 capital expenditure forecast to $175 billion from $190 billion, a $15 billion reduction that adds to investor concerns about the returns on Big Tech's artificial intelligence spending.

"The cut suggests Microsoft is reassessing the pace of its AI infrastructure buildout after a year of aggressive spending," said Rachel Kim, an analyst covering AI infrastructure at Edgen. "The question is whether this is a tactical pause or a signal that demand isn't materializing as fast as expected."

The revised figure still represents a significant increase from the $146.6 billion analysts expect Microsoft to spend in its fiscal year ending June 2026, according to data compiled by Bloomberg. The company had previously signaled a trajectory toward $190 billion for calendar 2026, a target that now appears to have been pulled back. Microsoft's Azure cloud business, a key beneficiary of the spending, posted roughly 40% revenue growth in the most recent quarter, though Alphabet's Google Cloud grew more than 80% in the same period, raising questions about Microsoft's competitive positioning.

The capex cut comes as Wall Street grows increasingly skeptical of Big Tech's willingness to pour tens of billions into AI infrastructure without clear near-term returns. Alphabet posted its first negative free cash flow as a public company last quarter after capital expenditures surged. Meta Platforms Inc. is expected to deploy $135.6 billion in 2026 and more than $175 billion in 2027, with free cash flow projected to fall below $1 billion this year from $46 billion in 2025. Amazon.com Inc. forecast $200 billion in total spending, sending its stock down 8% after its most recent earnings report.

What the cut means for suppliers

The $15 billion reduction could ripple through the AI supply chain. Nvidia Corp., whose graphics processing units power most large-scale AI training clusters, relies on hyperscaler spending for a significant portion of its data center revenue. Advanced Micro Devices Inc. and Broadcom Inc. also count Microsoft among their largest customers for AI accelerators and networking gear. A slowdown in Microsoft's procurement pace could pressure revenue forecasts across the semiconductor sector, where expectations remain elevated after two years of explosive growth.

Microsoft shares have declined 18% this year, making them one of the 20 worst performers in the Nasdaq 100 Index, which has gained 8.9% over the same period. The stock trades at less than 20 times forward earnings, below its 10-year average of 27 and the broader Nasdaq 100's multiple of 21.4, suggesting the market has already begun pricing in slower growth.

Investor takeaway

For investors, the capex revision introduces uncertainty into a sector that has been the primary driver of equity returns over the past two years. If Microsoft's pullback signals a broader trend among hyperscalers, companies supplying AI infrastructure — Nvidia, AMD, Broadcom, and data center real estate investment trusts — could face earnings estimate cuts in the coming quarters. Conversely, if Microsoft redirects the savings toward shareholder returns through buybacks or dividends, the stock's depressed valuation could attract value-oriented buyers. The company reports fiscal fourth-quarter earnings after the bell Wednesday, where executives are expected to provide further detail on the spending outlook for fiscal 2027.

This article is for informational purposes only and does not constitute investment advice.