Microsoft's AI Spending Hit $39.4 Billion in a Quarter. It Announced $25 Billion in Debt the Next Day

Since the Nasdaq's 2.86% drop on Friday, Oct. 30, the focus has moved from the size of the sell-off to how Big Tech will pay for its AI buildout, with U.S. markets set to reopen today, Nov. 2, and midterm elections on Tuesday.

Microsoft's numbers

Microsoft reported on Oct. 28 that revenue for its fiscal first quarter rose 19% to $92.3 billion, beating consensus estimates. Earnings per share climbed 32%, driven by the Azure cloud business.

Capital expenditures on property and equipment came to $39.4 billion. That is nearly double the $19.4 billion the company spent in the same quarter a year earlier. Microsoft said it expects spending to rise again in the second fiscal quarter.

On Oct. 29, the company announced it would issue $25 billion in corporate debt.

Panos Mourdoukoutas, writing in The Epoch Times, points to Microsoft's free cash flow as the number investors are fixated on. By his figures, it fell 6.46% over the 12 months ending Sept. 30, after declines of 3.23% and 24.54% in the two prior periods. Microsoft shares closed lower after the report, though by less than Alphabet and Amazon did.

Alphabet and Amazon

Alphabet fell more than 12% on Thursday, Oct. 29, erasing roughly half a trillion dollars in market value. Investors focused on slower search-advertising growth and higher AI spending. The stock slipped another 1.4% Friday, ending its worst month on record.

Amazon dropped 1.4% on Friday. It reported slower advertising growth and a retail miss, and CNN reported that its sales and profit fell short of analyst expectations. Alphabet and Amazon both forecast higher AI capital spending in 2027.

Matt Maley, chief strategist at Miller Tabak + Co, said Alphabet's promised AI returns are "getting pushed even further down the road." Joe Tigay, a portfolio manager at Equity Armor Investments, said the market is leaving the "hopes and dreams phase of the AI trade" for a "show me" phase.

"Full order books are great, but investors want to see who can actually deliver, turn that demand into earnings and generate cash," Tigay said.

Demand is not the problem

The companies and some analysts make the opposite case. All three cloud giants posted strong cloud growth this quarter, and Microsoft said it expects its AI-driven data-center investment to continue. Earlier this month, ASML raised its full-year outlook after record third-quarter sales, and Taiwan Semiconductor Manufacturing Company posted a record quarterly profit.

The dispute is over cash, not orders. Those chipmakers' results show spending flowing to suppliers. The sell-off reflects the open question of when the spenders get it back.

Financing moves

On Oct. 27, Anthropic's initial public offering filing gave the AI trade a lift. The prospectus, for what may be the largest stock market listing ever, detailed the billions of dollars in annual sales its products can generate and the resources it has to pay for chips and related equipment.

The same news cycle included SpaceX's $40 billion equipment-finance lease and Meta's plan for a $95 billion share sale. Hebe Chen, a market analyst at Vantage Global Prime, said the Anthropic filing and Meta's capex push "reignited broader risk appetite." Three days later, the Nasdaq had its worst day since June.

On Friday evening, S&P Global cut Meta's outlook to negative, as we reported Saturday.

Asia and China

The relief on Oct. 27 was uneven abroad. South Korea's Kospi rose as much as 4.9% as Samsung Electronics and SK Hynix each gained more than 4%. Japan's Nikkei 225 rose as much as 2.4%, with Advantest up more than 9%.

India's Nifty IT index fell 1.5% the same day. Infosys lost 1.58% after lowering its fiscal 2027 revenue growth guidance. Tata Consultancy Services dropped 2%.

The Kospi remains down more than 35% from its June peak, and foreign investors have sold more than $150 billion of South Korean stocks on a net basis this year.

Morgan Stanley strategists warned that offshore Chinese equities, mostly Hong Kong-listed, could fall another 10% to 15%, to about eight times 12-month forward earnings. They cited concerns about selling linked to a trust tax, strain on e-commerce companies, a weakening domestic economy and heightened global volatility. Mainland shares could de-rate to 10 to 11 times forward earnings, the bank said, but it still prefers them to offshore shares. Its reasons are government support and greater exposure to AI and innovation sectors.

The rate backdrop

The Bureau of Labor Statistics reported on Oct. 14 that September consumer prices rose 3.7% from a year earlier and 0.6% on the month. Core CPI rose 2.6% annually, and gasoline jumped 9.1% in September. The S&P 500 and Nasdaq fell about 1.1% and 1.9% that day, their largest one-day drops since July.

Higher rates make large debt-funded buildouts more expensive. Investors are still pricing in another Fed rate increase in December, as prior coverage noted.

What comes next

Microsoft's $25 billion debt issue is the first of the large raises to be announced with terms. Meta's $95 billion share sale and Anthropic's listing, which is expected next month, are the next tests of whether investors will keep funding the buildout at current prices.