Ed Ludlow

Two very similar stories, but stocks going in different directions.

Meta told us this year $135 billion of CapEx, but showed in the current period and beyond significant growth, particularly in the ad business, that justifies it.

Microsoft, CapEx $1.5 billion, beyond consensus in the quarter gone, but 38% growth in Azure, the cloud unit, that's the one we look at for the AI progress.

And on a constant currency basis or currency adjusted basis, it's basically in line with estimates.

And people are worried that this growth in CapEx is outpacing what is now decelerating growth in Azure for the time being, Caro.

Much to dig on here.

There is.

We've got the perfect person to do that with.

Let's bring in Gabriela Borges, analyst covering the emerging software sector within Goldman Sachs' Global Investment Research Unit, maintaining a buy rating on Microsoft, citing long-term strategic AI positioning.

So do we have to swallow the 66% increase in CapEx on the quarter for long-term rewards with Azure that just aren't showing up quite yet?

Yes, hi, good morning.

That's exactly the question that investors are asking us.

What's really interesting is this is the second quarter in a row where Microsoft is actually telling you there is a more nuanced way to think about their CapEx allocations.

Typically what you would expect to see is CapEx goes up, Azure revenue goes up, there's a really direct correlation.

What's happening in reality is Microsoft is telling you there are two important strategic priorities in addition to Azure revenue.

The first is Microsoft co-pilot and what they're doing in the first party apps ecosystem.

As co-pilot adoption goes up, so does the CapEx allocation that has to go to support that business.

The second is what they're doing with internal R&D.

So think Microsoft AI, for example.

Very strategic imperative because if they get some of these new markets right, like medical diagnostics, for example, that could be a really interesting long-term product cycle for them as well.