After Microsoft announced impressive financial results, driven by strong growth in its Azure cloud business and artificial intelligence (AI) services, its stock price surged nearly 9% in after-hours trading, easing concerns in the market about potential profit erosion due to high AI investments.
However, the overall sentiment in the U.S. stock market remains somewhat cautious. The Federal Reserve (Fed) announced maintaining the benchmark interest rate at 3.50% to 3.75%, with three Fed officials advocating for further rate hikes, sparking concerns in the market about inflation and interest rate prospects. Investors are also keeping a close eye on the massive AI capital expenditures by big tech companies, fearing that significant investments could impact free cash flow and continue to put pressure on AI-related stocks in the near term.
Microsoft released its financial results for the fourth quarter of fiscal year 2026 on July 29, surpassing market expectations in both revenue and profit. The outlook for the upcoming quarter also exceeded Wall Street estimates. Specifically, Azure cloud business revenue in the fourth quarter grew by 43% year-on-year, surpassing analysts’ predictions of around 40%. Moreover, Azure’s annual revenue crossed the $100 billion mark for the first time, becoming one of the key factors driving market confidence.
However, with factors like interest rate prospects and AI investment costs in play, major U.S. stock indices are still under pressure. The S&P 500 index fell to a near one-month low, the tech-heavy Nasdaq Composite index retreated by about 9% from its historical high in June, and the Nasdaq 100 index declined by approximately 11% from its peak. This reflects the market’s shifting focus from the scale of AI investments to whether these investments can translate into actual income and profits.
While Microsoft benefits from AI investments driving cloud revenue growth, Meta Platforms faces more market concerns regarding high-cost investments. The company announced that capital expenditures for 2026 are expected to range from $130 billion to $145 billion, with the lower end of the forecast range being raised from the previous $125 billion to $130 billion, indicating Meta’s substantial investment in AI infrastructure construction.
Following this announcement, Meta’s stock price dropped by around 4% in after-hours trading. Investors are worried that continued investments in the tens of billions of dollars by tech giants to build AI computing capabilities may squeeze free cash flow in the short term. The market is now paying more attention to when these immense investments can be transformed into actual income and profits.