Microsoft consolidates after strong rebound as AI spending and policy risks come into focus

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Azure growth supports Microsoft outlook

Azure and cloud growth keep fundamentals strong

In the fourth fiscal quarter, Microsoft’s revenue increased by 18% year over year to $90.0 billion, operating income also rose by 18%, while adjusted EPS increased by 23% to $4.74. Microsoft Cloud generated $59.3 billion, 27% more than a year earlier, while Azure and other cloud services grew by as much as 43%. Commercial remaining performance obligations reached $678 billion, giving the company significant visibility into future revenue.

The main driver for MSFT remains the combination of Azure, enterprise AI, and Microsoft 365. For the current quarter, the company is guiding for total revenue of $89.85–90.95 billion, Intelligent Cloud revenue of $40.95–41.25 billion, and Azure growth of approximately 44–45% in constant currency. Demand continues to exceed available capacity, so Microsoft continues to aggressively expand its infrastructure.

AI infrastructure expansion pressures margins and raises costs

CapEx amounted to about $41 billion in the last quarter alone, while management expects investment to continue increasing in FY2027. This is also becoming the main fundamental constraint: Microsoft Cloud gross margin declined under pressure from AI infrastructure spending, and the company directly indicates that a significant part of future investment will be directed toward GPUs, CPUs, and data centers.

Meanwhile, the U.S. midterm elections and the intensifying public and political debate around AI and data centers are becoming a source of uncertainty. A recent AP-NORC poll shows that 53% of Americans are extremely or very concerned about the environmental impact of AI, while around 60% support restrictions on the construction of new data centers; concern is present among supporters of both parties.

AP also reports growing local opposition to new data centers because of electricity and water consumption and the burden on infrastructure. For Microsoft, this factor is noticeably more important than for Apple, because the company is building one of the largest AI infrastructure networks in the industry.

Midterm elections add regulatory uncertainty to outlook

A change in the composition of the Senate does not in itself mean automatic tightening of regulation or a selloff in MSFT. However, if support for restrictions on data centers, AI safety requirements, or stricter oversight of powerful models increases after the elections, the market may begin to price in higher capital and regulatory costs. On the other hand, Microsoft is already strengthening its own Responsible AI framework and publicly promoting safety standards, which partially reduces the risk of suddenly having to adapt to new requirements.

At this stage, MSFT remains in a consolidation phase, where price fluctuations are limited by support around $490–485 and resistance at $510–516. The inability of bulls to break through resistance increases the risk of a support breakdown and a decline toward $480–470, where buying may emerge. The long-term outlook, as I warned in the article Microsoft AI monetization broadens beyond Azure, remains constructive.

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