Microsoft Earns 31% More Than It Did a Year Ago and Is Worth Less

MSFT reported fiscal 2026 net income of $133.7 billion, up 31% year-over-year, and revenue of $331.8 billion, up 18%. Despite the earnings growth, the stock's market capitalization fell 4.5% over the same period as investors compressed the multiple from 37x earnings to 27x.

The valuation reset centers on capital expenditure. MSFT plans to spend $175 billion on infrastructure in calendar 2026, a figure that now exceeds the company's operating income. The spending is tied to AI infrastructure buildout, but investors are questioning the timeline and magnitude of returns on that investment.

The divergence between earnings growth and share-price performance highlights a shift in sentiment: profitability alone isn't enough when capex outpaces operating income. The market is now pricing MSFT on return on invested capital rather than top-line AI enthusiasm.

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