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$MSFT Microsoft is set to report its earnings tonight. The market anticipates revenue of $90.6 billion, an adjusted EPS of $4.71, and 47.7% growth for Azure. However, even if Microsoft delivers another strong performance, its stock price may not necessarily rise. This is because Wall Street’s primary concern has shifted: the focus is no longer just on whether demand for AI is growing, but rather on what kind of return Microsoft will generate from its massive capital expenditures. $NVDA $MU $AVGO $VRT Microsoft will release its financial results for the first quarter of fiscal year 2027 after the U.S. stock market closes on October 28. The company previously provided a revenue guidance range of $89.85 billion to $90.95 billion. The market consensus sits at approximately $90.6 billion, representing a 16.7% year-over-year increase. In the previous quarter, Microsoft reported $90 billion in revenue—an 18% year-over-year jump—with Azure growing by 43% and Microsoft Cloud revenue rising 27% to reach $59.3 billion. From a fundamental perspective, Microsoft’s enterprise software, cloud computing, and AI businesses continue to show robust growth. Regarding Azure specifically, management noted last quarter that customer demand continues to outpace available computing capacity. Consequently, the first key metric to watch in this earnings report is Azure. Microsoft previously projected that Azure would grow by approximately 45% this quarter (on a constant-currency basis), but Wall Street’s latest expectations have climbed to 47.7%. If the actual growth reaches 48%—or even exceeds 50%—and management raises its outlook for the coming quarter, it would further confirm that enterprise demand for AI computing power remains strong. Conversely, if Azure growth comes in at only 44%–45%, it might trigger a sell-off; while such a growth rate is still exceptionally high in absolute terms, it would fall short of market expectations. The second key metric is capital expenditure (CapEx). Last quarter, Microsoft’s capital expenditures reached $41 billion, with roughly two-thirds allocated to assets such as CPUs and GPUs, which have relatively short lifespans. Management previously projected that capital expenditures for the current quarter would exceed $50 billion. According to S&P Global, analysts currently project that Microsoft’s capital expenditures (CapEx) for fiscal year 2027 could reach $196.6 billion—more than double the $64.6 billion expected for fiscal year 2025. It is important to note that this $196.6 billion figure represents a market forecast, not an official full-year guidance confirmed by Microsoft. Such a massive scale of investment is clearly a positive signal for companies like $NVDA, $MU, and $AVGO, as well as the broader data center infrastructure supply chain. Recent reports—such as SK Hynix’s 632% surge in operating profit and Vertiv’s more than 100% growth in new organic orders—underscore that the actual demand for AI infrastructure remains exceptionally strong. However, for Microsoft itself, rising prices for storage, GPUs, and power equipment translate into higher construction costs, while the addition of new servers will also lead to increased depreciation expenses in the years to come. Consequently, a continued rise in capital expenditures is not necessarily an outcome that Microsoft shareholders would welcome. If growth in Azure revenue can cover the additional depreciation and operating costs—while operating cash flow continues to improve—the market may be willing to accept higher capital expenditures. Conversely, if Microsoft further scales up its investments while profit margins in its cloud business begin to decline, the stock price could come under pressure, even if revenue exceeds expectations. A third key metric is the commercialization of AI. Last quarter, Microsoft disclosed that it had surpassed 30 million paid seats for Microsoft 365 Copilot, with a commercial remaining performance obligation (RPO) reaching $678 billion. However, a $678 billion contract backlog is not the same as realized revenue; this figure also includes commitments related to OpenAI. Moving forward, the focus should be on revenue from Azure AI services, the growth of paid Copilot users, and whether enterprise clients are willing to consistently increase their spending on AI software. If Microsoft can demonstrate that AI not only drives customers to purchase GPUs but also directly boosts revenue and profit margins for its enterprise software, market confidence in the company’s long-term profitability would likely see a significant improvement. Additionally, the Federal Reserve is set to announce its latest interest rate decision tonight; consequently, tech stocks may be influenced by both interest rate expectations and the company’s earnings results. Regarding this earnings report, I lean toward the view that Microsoft’s overall revenue and profit may still slightly exceed expectations—though this alone does not guarantee an increase in the stock price. What will truly determine the post-market price action is the interplay between Azure’s actual growth rate, guidance for the coming quarter, capital expenditures (CapEx), and cloud business profit margins. If Azure’s growth continues to accelerate and CapEx remains robust—without any significant deterioration in profit margins—then the AI ​​hardware sector, which faced a heavy sell-off in October, could find renewed support. Conversely, if Microsoft announces further substantial increases in investment without demonstrating that these outlays are translating into faster revenue growth, the market may continue to compress valuations for tech stocks. For the entire AI supply chain, Microsoft’s earnings report tonight is arguably as significant as that of SK Hynix. SK Hynix has already demonstrated that upstream memory manufacturers are generating massive profits; now, it is up to Microsoft to prove that downstream cloud computing firms can also derive sufficient commercial returns from these investments.