The 2025 Q4 earnings season continues to move at a rapid pace, with a fair chunk of S&P 500 companies already delivering their results. Among the bunch have been most of the Mag 7 members, including Microsoft MSFT and Alphabet GOOGL, both of which are deeply involved in the broader AI frenzy.
Both stocks have seen weak reactions post-earnings so far, though the reaction to MSFT has been considerably more negative. Extremely high capital expenditures (CapEx) have been a major driver of sentiment, with both investing heavily in their futures.
Microsoft posted a double-beat relative to our consensus expectations, continuing its established history of exceeding expectations. Adjusted EPS of $4.14 grew by 24% year-over-year, whereas sales of $81.3 billion grew 17% from the year-ago period.
But while the growth is impressive, investors have expressed concerns about CapEx for cloud and AI offerings and, importantly, a slowdown in Azure growth. For years, investors have placed a strong emphasis on accelerating cloud revenue, which has often dictated post-earnings reactions across the space, including with Amazon’s (AMZN) AWS.
CapEx for the period totaled $37.5 billion, of which $29.9 billion was for property and equipment, such as GPUs and CPUs to support Azure demand. Its broader Intelligent Cloud segment, which includes Azure, saw sales grow 28% year-over-year to $32.9 billion, though the segment’s gross margin took a hit due to continued AI investments.
Below is a chart illustrating its CapEx on a quarterly basis.
Image Source: Zacks Investment Research
Nonetheless, the valuation picture for the tech giant currently remains constructive, with the current 23.4X forward 12-month earnings multiple well beneath the 30.6X five-year median, also reflecting just a 3% premium relative to the S&P 500. The median premium over the last five years sits at 45%.
Image Source: Zacks Investment Research
In addition, the EPS outlook for its current fiscal year remains notably bullish, having risen 15% over the past year and also seeing a big post-earnings revision. The negativity in shares feels a bit overdone given the favorable earnings estimate revisions trend and sound valuation picture, but the stock nonetheless remains highly sensitive to broader AI trends.
Image Source: Zacks Investment Research
It’s also worth noting that MSFT shares have lagged the S&P 500 by a notable margin across a five-year timeframe, up 62% against the S&P 500’s 82% gain.
Similar to its peer MSFT, Alphabet posted a double-beat relative to our consensus expectations, with adjusted EPS of $2.82 shooting 31% higher year-over-year alongside a 18% sales increase.
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