Microsoft Expects About $170 Billion in Capital Spending in 2026
Key Facts
Microsoft expects to spend about $170 billion on capital expenditures during calendar year 2026, citing delays in third-party capacity deliveries. The company announced the estimate on its fiscal 2027 first-quarter earnings call, for the quarter ended September 30, 2026. The figure puts infrastructure spending at the center of discussion about cloud-computing expansion, as the company said demand for Azure continues to exceed available capacity. Microsoft had previously estimated 2026 capital investment at about $190 billion, including roughly $25 billion due to higher component prices. The latest estimate reflects a change in projected spending, while the company described delayed capacity deliveries as a direct cause.
Capital expenditures totaled $45.2 billion in the fiscal first quarter, after some third-party capacity deliveries expected during the quarter were delayed. Microsoft said about three-quarters of spending went to short-lived assets, while finance leases totaled $7.4 billion. Cash payments for property and equipment also came to $39.4 billion over the same period. These details help explain how investment was divided between assets serving near-term operating needs and commitments related to facilities and equipment. In its earlier first-quarter guidance, the company expected capital spending to exceed $50 billion, including the impact of reclassifying leases after an update to asset useful lives.
Microsoft's revenue rose 19% year over year to $92.3 billion in the fiscal first quarter. Azure revenue increased 48%, and the company said growth exceeded its expectations despite delays in third-party capacity deliveries. It said customers are seeking more computing capacity than can currently be supplied, linking the pace of cloud growth to the schedule for facilities and equipment coming online. The company said Azure revenue in the fiscal second quarter is expected to grow between 49% and 50% in constant currency. The guidance points to expected strong growth alongside the continued supply constraint that Microsoft said is limiting its ability to meet demand.
Cash flow from operations was $58 billion in the quarter, up 29%, driven by higher cloud-services billings and collections, according to Microsoft. Free cash flow was $18.6 billion, which the company said reflected higher capital expenditures. The combination of heavy investment and cash generated from operations highlights the company's ability to fund expansion, while quarterly figures indicate that capital spending is weighing on free cash flow. After announcing its earlier estimate of about $190 billion, the company said it expected capacity constraints to persist at least through the end of 2026. At the time, it also forecast modest acceleration in Azure growth in the second half of the calendar year compared with the first half.
In a separate report on computing contracts, Reuters reported on November 5 that Microsoft would not exercise an option that would have more than doubled the size of its existing agreement with cloud-computing provider Nscale to lease additional capacity at a data center in Texas. The news agency cited a source who said the decision was made months before the announcement and did not affect the existing agreement. The potential extension would have been worth tens of billions of dollars to Nscale. Nscale said work orders signed with Microsoft between September 2025 and April 2026 are worth about $43.8 billion through December 2033, excluding optional extensions. This context establishes that the decision not to exercise the option concerned a potential expansion, while the original contract remained in force.
Microsoft shares closed at $535.93 on November 5, 2026, according to EL7 data. The available information did not include a verified figure for the stock's move during the session or a comparison with the previous day's close. For the near term, the company said capital spending in the fiscal second quarter would exceed $50 billion. It added that spending is likely to accelerate in the second half of its fiscal year, driven by central processing units, graphics processing units and higher memory and storage costs, as well as third-party capacity deliveries that shifted into that period. These forecasts combine continued investment in computing capacity with expected Azure growth, while demand remains above available supply.