Few can dispute the success that Satya Nadella has had as CEO of Microsoft (MSFT +2.38%). Since he took the top job at the company in February 2014, its stock price has increased by about 1,360%. Factor in the value of reinvested dividends during that time, and Microsoft's total return was about 1,670%.
Nonetheless, thanks to the massive capital expenditures required to stay competitive in the AI and cloud computing realms, its near-term outlook seems more unpredictable. Should investors expect lower returns in the years to come, or could that heavy spending maintain or accelerate this cloud stock's gains?
Image source: The Motley Fool.
Microsoft and AI
One need only look at the trend in its capex figures to become concerned about this issue. In Microsoft's fiscal 2026 (which ended June 30), its capex was $116 billion, well above the $65 billion in the prior fiscal year or the $44 billion in fiscal 2024.
This rapidly climbing spending is not unique to Microsoft, which has the second-largest share of the global cloud infrastructure market. Its largest cloud competitor, Amazon, is on track to spend $220 billion in capex in 2026, while Alphabet, owner of third-place player Google Cloud, plans to spend approximately $200 billion.
However, in Microsoft's case, the improvements may be marginal. In fiscal 2026, revenue increased by 17%. That was only slightly above its 15% gain in fiscal 2025.
Moreover, Microsoft Cloud increased revenue by 27% year over year in fiscal 2026, a level unchanged from the prior year. And despite those gains, Microsoft's share price performance is on track to lag the S&P 500 (^GSPC +0.59%) for a third straight year.
NASDAQ: MSFT
Key Data Points
Microsoft's revenue growth also compares unfavorably with its peers, at least so far this fiscal year. In the first half of 2026, Amazon Web Services' revenue grew by 31% year over year, compared with 17% growth in the first two quarters of 2025. During the same periods, Google Cloud experienced a 73% revenue gain, far above its 30% increase in the prior-year period.
To be fair, Microsoft has not published Azure's revenue growth in the past, something it plans to do in the future. Nonetheless, we know that it has surpassed $100 billion for the first time on an annual basis, and in fiscal Q4, it increased by 43%. That indicates its investment may have gained more traction than the Microsoft Cloud numbers imply.
In terms of P/E ratios, Microsoft is the highest, though Amazon's and Alphabet's earnings multiples were skewed lower by one-time benefits relating to their gains on investments in other companies. Microsoft's forward P/E is the lowest at 27, but given the fact that its peers trade at only a slight premium, that may not be enough to lead investors to choose Microsoft stock.
| Company | P/E Ratio (TTM) | P/E Ratio (Forward) |
|---|---|---|
| Microsoft | 30 | 27 |
| Amazon | 21 | 31 |
| Alphabet | 18 | 29 |
Data source: YCharts. TTM = trailing 12 months.
Microsoft's AI spending
Given the effects of AI spending, investors should probably expect continued increases, though not at the same pace. Indeed, its growth rates remain brisk, and early indications suggest Microsoft has seen some increases.
However, Microsoft has underperformed the S&P 500 in recent years. Additionally, given the numbers revealed to the public, one has to assume Amazon and Alphabet have gained more traction from their AI spending. When their valuations are factored in, Microsoft's largest cloud peers are likely better buys right now.
