On August 1, 2026, overnight US stocks closed broadly higher, driven by strong earnings from tech giants, with Microsoft (MSFT) taking center stage. Microsoft reported its fiscal year 2026 fourth quarter (ending June 30) results after the market close on July 31, with both revenue and profit exceeding expectations. Its core Azure cloud business grew 45% year-over-year, far surpassing the 38% forecast, signaling accelerating AI monetization. However, a surge in capital expenditure also worried some investors, causing after-hours share price swings of over 3% before settling slightly higher. This article deciphers the signals behind the earnings report and explores the valuation reassessment and capital flows in tech stocks amid the AI computing boom.
Cloud Business Explodes, AI Services Become New Growth Engine
According to Microsoft's data, total Q4 revenue reached a staggering $91.2 billion, up 21% year-over-year, with net profit at $32.1 billion, up 24%, both beating analyst estimates. The core 'Microsoft Cloud' division saw revenue surge to $45.7 billion, with Azure infrastructure services revenue jumping 45% year-over-year, a significant acceleration from 40% in the previous quarter, indicating an exponential rise in enterprise demand for AI computing resources.
CEO Satya Nadella stated on the earnings call that Azure's quarterly AI-related revenue has surpassed $12 billion, growing over 120% year-over-year, and this trend is still accelerating. He emphasized, 'AI is no longer a concept; it's real orders and revenue.' Additionally, business applications like Microsoft 365 and Dynamics benefited from AI interfaces, boosting average revenue per user and driving commercial cloud gross margins above 72%.
Capex Doubles, Cash Burn Rate Becomes a Focal Point
However, what made the market most nervous was Microsoft's capital expenditure. To expand AI data centers and procure high-end GPUs, quarterly capex hit a record $28.9 billion, doubling year-over-year and exceeding the previous quarter's $25.5 billion. Management expects capex to continue increasing next fiscal year, potentially reaching $120 billion, leading some shareholders to worry about the payback period for AI investments.
Independent analysts noted that Microsoft's situation mirrors that of Amazon (AMZN) and Google (GOOGL): cloud revenue is growing rapidly, but massive capex is consuming significant cash flow, resulting in free cash flow growth of only 6%. 'The AI arms race has entered a capital consumption phase; the market needs patience for the harvest period.'
Capital Rotates from Hardware to Software, Tech Sector Mixed
Following the earnings release, US tech stocks saw a notable intraday rotation. AI chip stocks like Nvidia (NVDA), which performed strongly in the first half, initially rose but then fell, with capital clearly flowing into cloud services and software stocks. The three cloud giants—Microsoft, Google, and Amazon—all rose, with Microsoft up 2.3%, Google up 1.8%, and Amazon up 2.1%, while AI software companies led by Palantir surged over 6%.
In contrast, the Philadelphia Semiconductor Index was nearly flat, with Nvidia and AMD slightly down, reflecting profit-taking on chip companies as the major AI buyer, Microsoft, surged. Analysts view this as a crucial sector rotation signal: the market is shifting from 'shovel sellers' to 'gold miners,' i.e., from computing hardware to software service providers that can actually monetize AI.
- Microsoft (MSFT): +2.3%, hitting an all-time high, market cap approaching $4.5 trillion
- Nvidia (NVDA): -1.2%, investor profit-taking
- Palantir (PLTR): +6.5%, optimistic AI software demand
- Amazon (AMZN): +2.1%, warming expectations for upcoming AWS earnings
Treasury Yields and Macro Environment: Risk Appetite Rebounds
Beyond corporate earnings, macroeconomic data also boosted market sentiment. The US core PCE price index rose 2.5% year-over-year in June, down from 2.7% previously, with cooling inflation further cementing expectations for a Fed rate cut in September. The 10-year US Treasury yield fell below 3.9%, easing discount rate pressure on growth tech stocks and fueling the rally in high-valuation software stocks. The S&P 500 closed up 0.9%, and the Nasdaq rose 1.3%, both hitting record closing highs.
Opening Guidance for Asia-Pacific Markets
The strong overnight performance in US stocks is expected to provide a stable start for Asia-Pacific markets on August 3. Nikkei 225 futures rose 0.5%, with South Korea's KOSPI following suit. For Taiwanese tech stocks, Microsoft's expanded AI procurement budget for Azure will further benefit downstream server and power supply chains. However, if capital continues to rotate from semiconductor hardware to US software stocks, short-term foreign institutional selling in Taiwan's market could occur, warranting close attention to changes in foreign institutional futures and spot positions.
Overall, Microsoft's earnings show AI commercialization has entered a virtuous cycle, but the surge in capex introduces uncertainty for future profit margins. Investors should closely track cloud market share shifts and the AI revenue conversion rates of various vendors, navigating the long-term AI trend while avoiding short-term valuation bubble risks.
