Despite Microsoft (MSFT) posting better-than-expected Q3 earnings and revenue, shares in the stock still fell as much as 5% on Thursday. For the September quarter, Microsoft reported adjusted earnings per share of $4.13, compared to Wall Street’s consensus estimate of $3.67, according to FactSet. Additionally, revenue came in at $77.7 billion, which was ahead of analysts’ expectations of $75.4 billion.

“Continued strength in the Microsoft Cloud reflects the growing customer demand for our differentiated platform,” Microsoft CFO Amy Hood said after the earnings release. During the earnings call with investors, Hood also provided a revenue guidance range of $79.5 billion to $80.6 billion for the current quarter. While all of the numbers sound promising, the concern from Wall Street appears to come from Microsoft’s AI spending.

How AI Spending is Hurting Microsoft (MSFT) Stock

Amy Hood also said in her earnings report speech that Azure growth will come in at 37% growth in constant currency, which is in line with the Wall Street consensus, adding that demand remains “significantly ahead of capacity.” The strong demand behind more than Microsoft Azure could handle is a concern.

In addition, Microsoft CEO Satya Nadella said the company’s total AI capacity would grow by over 80% this year, with its data center footprint doubling over the next two years. That’s going to require a lot of spending. Microsoft reported that capital expenditures for the quarter totaled $34.9 billion, exceeding expectations. Hood said that the company’s capex growth rate for fiscal 2026 will be above the rate in 2025.

Also Read: Alphabet (GOOGL) Stock Booms 5% on Q3 Earnings Beat

Alternatively, despite being behind Alphabet (GOOGL) and Meta Platforms in the race to dominate AI-driven consumer tools, Microsoft is now betting big on its own operating system. The recent updates for Copilot on Windows could elevate Microsoft into a leader in AI, all while investing in itself. Microsoft has enabled voice activation for Copilot, allowing users to launch the AI assistant using the phrase “Hey Copilot.” This new opt-in feature brought on bullish investor sentiment, with shares rising a few percentage points following the announcement earlier this month. However, the sudden surge in AI spending is bound to catch up to Microsoft eventually and hurt shares, something Wall Street appears to be betting on.