Microsoft Spending Shortfall Trims Neocloud Shares

CoreWeave and Nebius shares declined by nearly 5 percent in extended trading on Wednesday following Microsoft's quarterly earnings report. The drop followed a similar 3 percent slide for IREN. Investors reacted to Microsoft's disclosure of $45.2 billion in capital expenditures and finance leases for the quarter. This figure represented a 30 percent increase year over year but fell short of the $50.7 billion average analyst estimate, according to StreetAccount.

The divergence between spending and revenue has raised questions about the pace of infrastructure delivery. Microsoft stated that Azure revenue grew 48 percent from the same period last year, outpacing the rise in capital spending. In its earnings deck, the company attributed this gap to timing differences between receiving goods and making payments, as well as a lower mix of finance leases. For a firm heavily reliant on external partners to secure artificial intelligence capacity, a slowdown in spending suggests those partners may be taking longer to deliver usable data center space.

Microsoft maintains significant financial ties to these specialized cloud providers. The company signed a nearly $20 billion agreement with Nebius at the end of last year for compute resources extending into the 2030s. It also stands as a top customer for CoreWeave. These relationships have made the neocloud sector sensitive to Microsoft's purchasing decisions, particularly as rising interest rates have increased the cost of future debt raises and prompted some lenders to pull back.

The sector has faced headwinds this month. Elon Musk, whose SpaceX rents AI infrastructure to Anthropic and Google, posted on X over the weekend that more than 200 neocloud companies will collapse. He noted that debt markets have largely cut off access to capital for firms without substantial revenue independent of AI data centers. Gartner analysts told CNBC last Monday that they predict 80 percent of neocloud companies will be absorbed or cease operations by 2030.

The negative sentiment followed a brief period of recovery. CoreWeave had risen 18 percent over the previous three trading days. Wolfe Research analysts wrote on Tuesday that they saw the stock rebounding into the mid-$70s. The stock closed Wednesday at $63.93.

Alphabet reported its own capital expenditure figures on Wednesday, totaling $51.36 billion against an analyst estimate of $55.09 billion. Oracle also issued a strong long-term revenue forecast, stating it would return to free cash flow positive in the second half of next fiscal year. Oracle stock jumped 11 percent in regular trading but retreated 3 percent after Microsoft's report.