The Risks of Microsoft’s Relatively Restrained Capex

Microsoft came out of this summer’s earnings season looking like a prudent spender. Unlike rival cloud computing firms Amazon and Alphabet, which both burned cash thanks to their heavy AI investments, Microsoft not only generated $19.6 billion in free cash flow in the June quarter but forecast it will continue to generate cash for at least the next year. The result helped swing investment sentiment to the positive side, lifting the stock 29%.

What hasn’t received enough attention is how Microsoft has managed to stay cash flow positive. One longstanding reason is that Microsoft leases data center capacity from other companies including neocloud firms—such as CoreWeave—much more heavily than either Amazon or Google. That reduces its near-term capital expenditures but could give it less control over costs in the future.