One generally needs to spend money to make money, an axiom that Microsoft (NASDAQ:MSFT) has clearly taken to heart. If its recent actions are any indication, its cash spigot is gushing at full blast.
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In its most recent quarter, Microsoft reported capital expenditures of $34.9 billion, and management has indicated that fiscal 2026 spending is expected to exceed the $88.1 billion invested last year.
With the company projected to generate $80.31 billion in revenue in its fiscal second-quarter 2026 report today, Microsoft has the financial capacity to support this level of investment. Still, while its balance sheet remains strong, concerns are emerging that the scale of these expenditures could weigh on near-term profitability.
Those concerns are being amplified by broader unease around a potential AI bubble forming across the technology sector. Should such a pullback materialize, Microsoft, as one of the dominant hyperscale cloud providers, would likely face heightened exposure relative to smaller peers.
Even so, top investor Michael Del Monte isn’t losing sleep over this possibility.
“I believe a critical factor that is oftentimes overlooked is that Microsoft’s cloud business isn’t dependent on AI development but rather on cloud hosting services,” explains the 5-star investor, who is among the top 2% of stock pros covered by TipRanks.
Del Monte posits that AI applications are “additive” and that demand for its hosting services is what’s driving its cloud business. In other words, as one of the largest cloud computing providers in the world, Microsoft should remain well-positioned for further growth beyond AI applications.
That doesn’t mean that Del Monte is bearish on AI, however. In fact, the investor expects Microsoft to be a major player in the multi-year development of AI, particularly as it transitions into the physical space.
“Smart factories, a market Microsoft is addressing, may be the big paradigm shift for AI as information technology and operational technology converge with physical AI as the centerpiece,” Del Monte adds.
While there could be some shorter-term bumps related to the adoption of Copilot and other enterprise AI applications, Del Monte is staying the course.
Moreover, the investor expects Microsoft to share healthy numbers today, predicting that the company will report $80.75 billion in net revenue (which would represent year-over-year gains of 16%) and a diluted EPS of $3.99 (which would represent year-over-year gains of 23.5%).
“The bottom line is that I don’t believe the hyperscalers will be significantly impacted by the perceived AI bubble,” sums up Del Monte, who rates MSFT a Strong Buy. (To watch Del Monte’s track record, click here)
Wall Street seems to agree. With 33 Buys and 2 Holds, MSFT cruises to a Strong Buy consensus rating. The average 12-month price target of $618.85 implies about 29% upside from current levels. (See MSFT stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.