Microsoft's AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year, as capital expenditures reached $30.876 billion in the most recent quarter, up 84.39% year over year.

CEO Satya Nadella stated the AI franchise is expanding rapidly, with the AI business surpassing an annual revenue run rate of $37 billion, up 123% year-over-year. Intelligent Cloud reported $34.681 billion, up 30%, and Azure grew 40%.

Capital expenditures hit $30.876 billion in the most recent quarter, up 84.39% year over year, while OpenAI investment losses widened to $3.1 billion in Q1 FY2026 versus $523 million a year earlier. The market is questioning AI return on capital.

Microsoft shares trade at $421.06, down 12.74% year to date, at a forward P/E of 22x. Wall Street consensus target sits at $560.63 (33% upside), while a 2028 base case model lands at $526.95 with a bull case of $602.99 and bear case of $465.06.