Nathaniel Whittemore

They didn't adjust CapEx guidance, so it seems they won't be attempting to catch up in a major way.

Of course, for investors, it's not as simple as just spending more on CapEx.

Microsoft also disclosed an operating margin of 45.1%, falling short of the 45.5% consensus forecast.

Not a huge miss, but spending more money on CapEx now will make operating margins worse in the short term due to the construction lag.

Overall, CEO Satya Nadella doesn't seem too bothered by the state of play and is happy to play the long game.

He told investors, we are only at the beginning phases of AI diffusion, and already Microsoft has built an AI business that is larger than some of our biggest franchises.

We are pushing the frontier across our entire AI stack to drive new value for our customers and partners.

He reiterated those themes in a thread on X, actually spending a bunch of time on agents.

Nadella wrote, like in every platform shift, all software is being rewritten.

A new app platform is born.

you can think of agents as the new apps.

We're providing everything customers need to build their own agents, including model catalogs, harnesses for orchestration, context engineering, plus AI safety and observability.

Bottom line, he says, our TAM will grow substantially across every layer of the tech stack as this diffusion accelerates and spreads, and we feel very good about how we're delivering for our customers today and innovating to capture the opportunity ahead.

My honest read here is that as much as some commentators are trying to make this just about CapEx spending, it's more about A, conversion on AI, and B, perception of strength in the AI race.

Zuckerberg advised a way bigger CapEx jump than Microsoft did and got rewarded by traders.

That means that this can't be about CapEx alone.

But as we heard, the story with Meta was a big increase in the ad business, i.e.

a conversion on AI spend, and tailwinds in the AI race because while their models haven't kept up with others, they do have a thing that they are the undisputed leader of in this AI race, which is, of course, the Ray-Bans and AI wearables.

Compare that with the theme explored by Bloomberg columnist Dave Lee in his piece published on Thursday morning called Microsoft Has Lost Its AI Sparkle.

Dave writes, Who could forget those heady days when Microsoft Chief Executive Officer Satya Nadella looked like the smartest man in tech?