Microsoft Earnings Analysis: You Can’t Spell ROI With AI ⭐

Microsoft delivered another blockbuster financial quarter, but investors remain unconvinced about the return on investment (ROI) on Microsoft's escalating AI spending. That's pretty much all they asked about in the post-earnings conference call.

In case you missed it, Microsoft reported a net income of $38.5 billion on revenues of $81.3 billion in the quarter ending December 31 yesterday. Those figures represent gains of 60 percent and 17 percent, respectively, year-over-year (YOY), which is rather incredible for a company of this size and maturity.

Microsoft has three core business units, but it insists on touting its imaginary Microsoft Cloud "business" as some kind of a metric, with CEO Satya Nadella noting that it surpassed $50 billion in revenue for the first time in Microsoft's second fiscal quarter of 2026. Which is as relevant as saying that your imaginary friend just won a race against real people.

Microsoft's three real business units broke down like so in the quarter:

Productivity and Business Processes. This is Microsoft 365, so Office plus Windows commercial. Revenues increased 16 percent YOY to $34.1 billion.

Intelligent Cloud. This is Azure. Revenues were up 29 percent YOY to $32.9 billion.

More Personal Computing. This is Windows consumer (mostly from PC makers) and Xbox. Revenues declined 3 percent YOY to $14.3 billion.

Microsoft's post-earnings conference call provided some further details, including a big Windows 11 milestone and a few other hard numbers. But the bulk of it was Microsoft executives, primarily CFO Amy Hood, the person who really runs this company, trying unsuccessfully to calm investor fears that Microsoft's AI spending is running off the rails.

Let's dive in.
? Microsoft's massive AI spend
In its quarterly results, Microsoft noted that its capital expenditures in the quarter—which translates directly to the cost of its AI infrastructure build-out—were $37.5 billion. This massive number is 66 percent higher than the $15.8 billion it spent in the same quarter one year ago. But that's no surprise. After all, Microsoft had been escalating this spend for two years, and it at one point pledged to spend $80 billion in fiscal 2025 on AI infrastructure.

Here's the problem. The number keeps going up. Microsoft actually spent $84.6 billion on AI in fiscal 2025, and it's now spent $72.4 billion on AI in the first two quarters of fiscal 2026 alone. If that spending just stays flat, Microsoft will spend $145 billion on AI in 2026, almost double the spend in 2025. But it won't stay flat over the year, despite a quarter-over-quarter decrease this quarter "due to the normal variability from cloud infrastructure buildouts and the timing of delivery of finance leases." It will keep going up.

And as expected, analysts asked about the cost of AI in every way imaginable during the post-earnings conference call. Also as expected, Microsoft aggressively defended the spending while trying to get...