Microsoft AI Capex and Cash Flow: How Spending Hits Cash

Training and running AI models takes huge buildings full of chips, cooled and powered day and night. Only a few companies can afford to build them at scale. Each of them now spends more on land, buildings and servers in a quarter than most firms earn in a year, and they say demand still runs ahead of what they can supply.

That spending is hard to judge from outside the company. The cash goes out in one quarter, but the cost reaches profit over many years. Part of the bill comes as leases, paid off slowly, and a change in tax rules can make the cash left over look better than the profit behind it.

Two lines in each report track it. Capital expenditure, or capex, shows what goes into new capacity, and free cash flow shows what is left once that is paid for. Read side by side with the company's own outlook, they tell you how big the build is and how much cash remains for dividends, buybacks and debt.

At Microsoft, those two lines have moved the share price on report nights alongside cloud growth. The shares (MSFT) are listed on Nasdaq, and on BloFin you can follow their price through the MSFTUSDT Perpetual, a futures contract with no expiry that settles in USDT. So the capex figure in each report is one of the numbers that moves a position.

What is Microsoft's AI capex?

Microsoft's AI capex is the money it puts into data centers, servers and chips. Counting finance leases, it spent $45.2 billion in July to September 2026, the first quarter of Microsoft's fiscal 2027. Adding up its four quarters of fiscal 2026, which ran to June 30, 2026, gives $145.3 billion (source: Microsoft October 2026 earnings slides).

Microsoft reports one capex figure and does not split out the AI part. Finance chief Amy Hood said in October 2026 that roughly three quarters of the quarter's capex paid for short-lived assets, chiefly CPUs and GPUs, including higher memory and storage costs (source: Microsoft October 2026 earnings call). Customers use those chips for both AI and other cloud work, so when the news says "AI capex", it usually means the whole line.

Because Microsoft closes its books each June 30, its fiscal year runs from July to June. Its second fiscal 2027 quarter therefore covers October to December 2026. The spending supports the cloud and AI services that drive most of Microsoft's growth. They sit in its Agents and Infra segment, one of the two segments behind how Microsoft makes money.

Microsoft capex by quarter

Microsoft's capex rose to $45.2 billion in July to September 2026, a 30% increase on the $34.9 billion of a year earlier, and up from $41.0 billion in April to June 2026 (source: Microsoft October 2026 earnings slides). Each figure includes finance leases, which Microsoft books in full on the day a lease starts.

The quarterly figures are rounded. Added up, the four fiscal 2026 quarters give $145.3 billion of capex, of which $28.1 billion, or 19.3%, came from finance leases, and $67.0 billion of free cash flow. The annual report gives $115.9 billion of cash spent and $182.9 billion of cash from operations, a little off the quarterly sums (source: Microsoft Form 10-K for fiscal 2026).

Finance leases and cash spent on property and equipment

A finance lease is a long rental that Microsoft accounts for much like a purchase. It books the full value of a leased data center site as capex in the quarter the lease starts, then pays the rent over the following years. Hood has said finance leases are the main reason capex and cash spent differ in a quarter, along with goods received but not yet paid for (source: Microsoft October 2025 earnings call).

That gap explains the uneven shape of the quarters. In July to September 2025, $11.1 billion of new leases lifted capex to $34.9 billion, yet only $19.4 billion of cash went out. Free cash flow held up at $25.7 billion. In the next quarter fewer leases started and cash spending jumped to $29.9 billion, so free cash flow fell to $5.9 billion, which Hood put down to the lower mix of leases (source: Microsoft January 2026 earnings call).

Cash spent and finance leases measure different things, so their sum drifts away from capex. In July to September 2026, capex was $45.2 billion, finance leases were $7.4 billion and cash spent was $39.4 billion. Microsoft said cash spending grew faster than capex because of timing gaps between receiving goods and paying for them, and a lower mix of finance leases (source: Microsoft October 2026 earnings slides).

The leases still cost money, just later. Microsoft owed $71.0 billion on finance leases at September 30, 2026, up 6.6% from $66.6 billion three months earlier, and paid $769 million of interest on them in the quarter (source: Microsoft Form 10-Q for July to September 2026).

What Microsoft's capex buys

Most of Microsoft's capex now buys servers, CPUs and GPUs that wear out within six years. The rest pays for land and buildings that last for decades. The servers, network gear and software Microsoft owned rose 62.5% over fiscal 2026 (source: Microsoft Form 10-K for fiscal 2026). By September 30, 2026 they had reached $244.8 billion at cost, up another 13.4% in three months (source: Microsoft Form 10-Q for July to September 2026).

The mix has tilted toward chips. In July to September 2025 about half of capex went on short-lived assets, in each of the next three quarters about two thirds, and in July to September 2026 roughly three quarters (source: Microsoft October 2026 earnings slides). Servers, network gear and software now make up 51.6% of Microsoft's property and equipment at cost, up from 44.5% at June 30, 2025.

Part of the rise is price, as well as more capacity. Memory chips cost more through 2026. In April, Hood said about $25 billion of the $190 billion she then expected for calendar 2026 came from higher component prices, or 13.2% of the total (source: Microsoft April 2026 earnings call). Microsoft's cash flow statement also shows $22.2 billion more paid out under other investing in fiscal 2026, mainly to help it buy components, and that cash sits outside the capex line (source: Microsoft Form 10-K for fiscal 2026). In July to September 2026 that other investing ran $6.7 billion higher than a year before, again mainly for components (source: Microsoft Form 10-Q for July to September 2026).

The chip-heavy mix also gives Microsoft a way to slow down. Hood said in July that CPUs and GPUs have relatively short lead times, so if demand changes Microsoft can slow the largest part of its spending. She added that the timing of land and building work can also be changed (source: Microsoft July 2026 earnings call). Some of the chips in those servers are Microsoft's own designs, which is the subject of why Microsoft makes its own AI chips.

Rented capacity and power limits

Microsoft also rents ready-built GPU capacity from smaller cloud firms, often called neoclouds. Nebius agreed on September 8, 2025 to supply GPU capacity in Vineland, New Jersey, for fees estimated at up to $17.4 billion through 2031. The total rises to about $19.4 billion if Microsoft buys more (source: Nebius filing with the SEC).

IREN signed a similar deal on November 2, 2025. It is worth about $9.7 billion through 2031, for Nvidia GB300 GPUs at its sites in Childress, Texas, with about 200 megawatts of computing load (source: IREN Form 8-K). In both deals the supplier pays for the build, partly from Microsoft's fees, and Microsoft pays service fees once capacity is delivered (source: Nebius filing with the SEC). In IREN's deal, though, 20% of each tranche is paid before delivery (source: IREN Form 8-K).

Capacity from outside suppliers can also arrive late. Hood said some third-party capacity deliveries Microsoft expected in July to September 2026 were delayed, which held capex down that quarter. Some GPU-as-a-service contracts have moved into January to June 2027, and customer demand still runs ahead of the supply Microsoft has (source: Microsoft October 2026 earnings call).

Power is the other limit. In October 2025 Hood said Microsoft had spent years short of space and power to put chips in, more than short of the chips themselves. She added that it was using leases to build that out (source: Microsoft October 2025 earnings call). Long-lived sites are the part of capex that solves that problem.

How capex affects Microsoft's free cash flow

Microsoft defines its free cash flow as operating cash minus cash paid for property and equipment, and reconciles it in its earnings slides. In July to September 2026 it was $18.6 billion, or $58.0 billion less $39.4 billion, down 27.4% from $25.7 billion a year earlier (source: Microsoft October 2026 earnings slides).

Over fiscal 2026, free cash flow came to $67.0 billion, down 6.5% from $71.6 billion. Cash from operations rose 34.4%, but cash spent on property and equipment rose 79.6% (source: Microsoft Form 10-K for fiscal 2026).

Put plainly, Microsoft now spends about two of every three dollars of cash its operations bring in on property and equipment, up from under half in fiscal 2025. That spending equaled 34.9% of fiscal 2026 revenue. Microsoft still paid out $48.7 billion in dividends and buybacks over fiscal 2026, which free cash flow covered (source: Microsoft Form 10-K for fiscal 2026).

Finance leases sit outside free cash flow. A leased data center adds to capex the day it starts, but its cash goes out only as rent is paid. In fiscal 2026 that was $2.5 billion of interest inside operating cash and $3.1 billion of repayments in financing (source: Microsoft Form 10-K for fiscal 2026). In July to September 2026 it was $769 million of interest and $1.0 billion of repayments (source: Microsoft Form 10-Q for July to September 2026). So when fewer leases start, free cash flow falls faster than capex rises, as Hood said of the drop to $5.9 billion at the end of 2025 (source: Microsoft January 2026 earnings call).

On October 28, 2026, Hood said Microsoft expects free cash flow to stay positive in fiscal 2027, the year to June 2027. She added that it will raise other funding when the terms are attractive (source: Microsoft October 2026 earnings call). That sets a floor without a number. Free cash flow also feeds the price-to-free-cash-flow ratio, one of the measures in BloFin's guide to valuing Microsoft stock.

Depreciation and Microsoft's profit

Depreciation is how capex reaches profit, because Microsoft spreads the cost of each asset over its useful life. Its depreciation expense was $11.1 billion in July to September 2026, up 56.3% on a year earlier, while cash spent in the quarter was $39.4 billion. Most of that outlay has yet to reach the income statement (source: Microsoft Form 10-Q for July to September 2026).

Over fiscal 2026 the charge rose 55.9% to $34.3 billion. The annual report gives servers and network gear a life of two to six years and buildings five to 15 years, while land is never depreciated (source: Microsoft Form 10-K for fiscal 2026). That is why the chip-heavy mix matters for margins. Say Microsoft spends $10 billion on servers with a six-year life. About $1.7 billion a year then comes off profit for six years, and then the servers need replacing.

Hood made the same point about memory prices in January 2026. Dearer memory lifts capex straight away, she said, while the hit to Microsoft Cloud gross margins builds slowly as those assets depreciate over six years (source: Microsoft January 2026 earnings call). A jump in capex today is a margin cost spread over the next several years.

The useful-life change from 15 to 25 years

From July 1, 2026, the start of fiscal 2027, Microsoft spreads the cost of its data centers and office buildings over 25 years instead of 15. Hood announced the change on the July 29, 2026 call, citing Microsoft's history with these buildings. She said it changes only the timing of depreciation, with a minimal benefit to fiscal 2027 operating income (source: Microsoft July 2026 earnings call). On a $10 billion building, the yearly charge falls from about $0.7 billion over 15 years to $0.4 billion over 25. Microsoft's quarterly report for July to September 2026 does not mention the change.

The bigger effect is on the capex figure itself. A lease that runs for most of a building's useful life counts as a finance lease, so a longer life means fewer leases pass that test. Hood said more future data center leases will now count as operating leases, which stay out of capex, and fewer as finance leases, which count in it. Hood named data centers and office buildings only, so servers stay on lives of up to six years.

The 2025 tax law and Microsoft's cash taxes

The 2025 US tax law lets companies deduct the full cost of servers and other short-lived gear in the year they buy them, which delays the tax. Microsoft named the law, signed on July 4, 2025, in its first fiscal 2026 quarterly report (source: Microsoft Form 10-Q for July to September 2025). Its cash taxes fell to $21.2 billion in fiscal 2026 from $28.7 billion (source: Microsoft Form 10-K for fiscal 2026).

The law restored the full first-year deduction for property bought and put into use after January 19, 2025. It covers equipment with a tax life of 20 years or less, which takes in servers, while commercial buildings have a 39-year tax life and are left out (source: IRS Publication 946). It also lets companies deduct US research and development costs in the year they pay them (source: IRS summary of the 2025 tax law).

Microsoft's annual report does not mention the law, but its tax note shows the pattern full expensing produces. Its current US federal tax fell to $2.5 billion from $14.1 billion, while a deferred US federal tax charge of $12.8 billion appeared. The deferred tax it owes because tax write-offs run ahead of book depreciation rose to $17.7 billion from $5.7 billion (source: Microsoft Form 10-K for fiscal 2026).

A worked example shows the effect. Say Microsoft buys $20 billion of servers. Deducting it all in year one cuts that year's US federal tax by up to $4.2 billion at the 21% rate. Spread over six years like the book cost, the first year's saving would be about $0.7 billion. The tax comes back in later years, when there is nothing left to deduct.

In the cash flow statement, deferred taxes added $14.2 billion to cash from operations in fiscal 2026, or 21.2% of free cash flow. Without that line, free cash flow would have been about $52.8 billion (source: Microsoft Form 10-K for fiscal 2026). The pattern held in July to September 2026, when deferred taxes added $4.6 billion and Microsoft named lower cash tax payments as one reason operating cash rose (source: Microsoft Form 10-Q for July to September 2026). The saving is a delay, so the tax falls due in later years as the write-offs run out.

Microsoft's capex outlook for fiscal 2027

Microsoft expected capex of over $50 billion for July to September 2026 (source: Microsoft July 2026 earnings call). It spent $45.2 billion, which Amy Hood put down to late deliveries of third-party capacity. For October to December 2026 it expects over $50 billion again, and it now puts calendar 2026 at about $170 billion, down from about $175 billion in July (source: Microsoft October 2026 earnings call).

Microsoft's capex was $72.9 billion in January to June 2026 and $45.2 billion in July to September, so its figure of about $170 billion for the year implies roughly $52 billion for October to December. That is in line with the over $50 billion it gave for that quarter (source: Microsoft October 2026 earnings call). That would be at least a third more than the $37.5 billion of a year before.

Hood said spending should speed up in January to June 2027. Most of it will go on CPUs and GPUs, which now cost more for memory and storage, and on the third-party capacity that slipped into those months (source: Microsoft October 2026 earnings call). A year earlier, Microsoft published its October to December 2025 results on January 28, 2026 (source: Microsoft January 2026 earnings call). When it reports October to December 2026, set its capex against the over $50 billion outlook first, then check finance leases, cash spent and free cash flow. The ranges Microsoft gave in July for its other businesses are in BloFin's preview of Microsoft's October report.

Microsoft capex beside Amazon, Alphabet and Meta

Microsoft builds alongside Amazon, Alphabet and Meta, and the four count capex in different ways. Meta reported on October 21, 2026. It spent $34.9 billion in July to September, counting finance lease payments, and its free cash flow turned negative at $2.1 billion (source: Meta third quarter 2026 results).

Meta's report shows how fast spending can outrun cash. Its $32.8 billion of operating cash fell short of its capex for the quarter. For calendar 2026 as a whole, Meta now expects capex of $135 billion to $145 billion (source: Meta third quarter 2026 results). Over the same three months, Microsoft's $45.2 billion of capex still left $18.6 billion of free cash flow.

The measures differ, so compare like with like. Meta counts finance lease principal as it is paid, while Microsoft counts a finance lease's full value when the lease starts. For Meta's own numbers and measure, see BloFin's guide to Meta's AI capex.

Amazon and Alphabet use measures of their own too, which BloFin covers in Amazon's AI capex and cash flow and Alphabet's AI capex. Read each figure on the company's own basis before you rank the four.

How capex news moves Microsoft stock

Capex has moved Microsoft stock when it landed far from what investors expected, or when it changed the free cash flow picture. In January 2026, capex came in higher than estimates (source: Reuters via Yahoo Finance), and the stock fell 10.0% the next day. In July a lower capex outlook and stronger free cash flow (source: Reuters via Zawya) came before a 15.5% gain (source: Nasdaq MSFT history).

On January 28, 2026, Microsoft reported capex of $37.5 billion, against estimates of $34.3 billion from Visible Alpha. Reuters wrote that the shares fell 6.5% in after-market trading (source: Reuters via Yahoo Finance). They closed the next day at $433.50, down from $481.63, a fall of 10.0%. Azure, Microsoft's cloud, also grew only a little faster than forecast that night, so the capex figure arrived beside a thin cloud beat.

On July 29, 2026, it went the other way. Microsoft's outlook of over $50 billion for the next quarter came in under Visible Alpha's $56.0 billion estimate, after the lease change. Its $19.6 billion of free cash flow beat the $13.4 billion analysts expected. Reuters wrote that the stock gained more than 8% in extended trading (source: Reuters via Zawya). It closed the next day at $451.10, up 15.5% from $390.54.

So the capex number is read against two things: what analysts expected, and what is left in free cash flow. An outlook that looks lower because of an accounting change, as in July, still moves the stock on the night, before most investors have read the detail. If you follow those nights on the MSFTUSDT Perpetual page, the capex line and free cash flow are the two figures to find first.

Trading Microsoft's capex news on BloFin

On BloFin, the MSFTUSDT Perpetual tracks Microsoft's share price with up to 20x leverage (source: BloFin MSFT-USDT contract details), so a capex surprise reaches it as a price move. When US markets are shut, BloFin may switch its stock futures to reduce-only trading, so right after a report you may only be able to cut or close a position (source: BloFin stock futures notice).

That makes position size the choice to settle before the report. In January 2026 the stock fell 10.0% from the close before the report to the close after it. At 10x leverage, a move that size equals a position's whole margin, before fees. The perpetual also carries no dividends or voting rights, so it gives you the price and no share of Microsoft's cash (source: BloFin stock futures notice).

If you already own Microsoft shares and worry about a capex shock, a short perpetual position can offset part of a fall while you keep the shares. Hedging with the MSFT perpetual works through the hedge ratio, the trading hours and the funding cost.

Looking to trade Microsoft around its next capex figure with crypto? To get started, you'll need to first create a BloFin account, fund your account with cryptocurrency, and go to the MSFTUSDT Perpetual trading page.

Frequently asked questions

How fast is Microsoft adding data center capacity?

Microsoft added 24 new data centers across five continents in July to September 2026, Satya Nadella said. In its biggest regions it also cut the time it takes to bring new GB300 GPU servers into use by about 20% from the quarter before (source: Microsoft October 2026 earnings call). In July he had said Microsoft added about a gigawatt of capacity in April to June 2026 and was on track to roughly double its total capacity in two years (source: Microsoft July 2026 earnings call). A gigawatt is a measure of power, so Microsoft sizes its capacity by the electricity its sites can draw.

Is Microsoft borrowing to pay for its AI build-out?

Microsoft's debt fell to $35.5 billion at September 30, 2026 from $40.3 billion at June 30, after it repaid $4.9 billion in the quarter (source: Microsoft Form 10-Q for July to September 2026). Its lease debt rose instead, and finance lease liabilities of $71.0 billion now come to about 2.0 times its debt. Hood said in October 2026 that leasing has been Microsoft's form of financing so far. It has yet to tap the debt markets for the build-out, and will raise funding when it is attractive to do so (source: Microsoft October 2026 earnings call).

What are Microsoft's signed data center leases?

Microsoft had signed $364.6 billion of leases, mainly for data centers, that had yet to begin at September 30, 2026. They start between fiscal 2027 and fiscal 2034 and run for 1 to 20 years, and some depend on conditions being met (source: Microsoft Form 10-Q for July to September 2026). Three months earlier the total was $329.1 billion (source: Microsoft Form 10-K for fiscal 2026). Each one adds to capex only if it counts as a finance lease when it starts.

How much does Microsoft spend on research and development?

Microsoft spent $35.6 billion on research and development in fiscal 2026, up 9.5% and equal to 10.7% of revenue (source: Microsoft Form 10-K for fiscal 2026). Microsoft says the figure includes the cost of AI training and other infrastructure its product teams use. R&D is an expense that hits profit in the year it is spent, while capex is spread over years through depreciation.

How much is Microsoft investing in the UAE?

Microsoft plans to spend $15.2 billion in the United Arab Emirates from 2023 to 2029, Brad Smith wrote in November 2025. That includes a $1.5 billion stake in G42, the UAE's sovereign AI company, and more than $10.1 billion of data center capex in all (source: Microsoft On the Issues). The build needs US export licenses for Nvidia chips, and licenses approved in September 2025 cover the equivalent of 60,400 more A100 chips, shipped as GB300s.

Researched and written by the BloFin Academy editorial team with AI-assisted drafting. All facts independently verified. Primary sources include Microsoft's annual report on Form 10-K for fiscal 2026, its quarterly reports on Form 10-Q for July to September 2025 and July to September 2026, its earnings calls from October 2025 to October 2026 and its October 2026 earnings slides, its November 2025 UAE investment post, IRS Publication 946 and the IRS summary of the 2025 tax law, SEC filings by Nebius and IREN, Meta's third quarter 2026 results, Reuters reports on the January and July 2026 results, Nasdaq price history and BloFin's stock futures notice, current as of October 29, 2026.

Nothing in this article constitutes financial advice, and nothing in it is a recommendation to buy, sell or hold Microsoft in any form. Microsoft's capex and free cash flow can land far from what investors expect, and in January 2026 a capex figure above estimates came before a one-day fall of 10.0%. On a leveraged MSFTUSDT Perpetual position, a move like that can trigger liquidation, and because Microsoft reports after the US close, the first reaction may arrive while only reduce-only orders are allowed. Past performance does not indicate future results. Do your own research and consider your risk tolerance before you trade on BloFin.