Microsoft Tumbles After Cloud Growth Slows, CapEx Soars

With all eyes firmly focused on CapEx numbers to keep the AI-expansion narrative alive, Microsoft beat expectations on top- and bottom-line, and operating income, but a bigger than expected CapEx.

“We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises," said Satya Nadella, chairman and chief executive officer of Microsoft.

“We are pushing the frontier across our entire AI stack to drive new value for our customers and partners.”

Microsoft posted adjusted earnings of $4.14 a share on revenue of $81.3 billion (better than expected earnings of $3.91 a share and revenue of $80.3 billion), beating across every segment:

• Intelligent Cloud revenue $32.91 billion, estimate $32.39 billion

• Azure and other cloud services revenue Ex-FX +38%, estimate +38%

• Productivity and Business Processes revenue $34.12 billion, estimate $33.45 billion

• More Personal Computing revenue $14.25 billion, estimate $14.33 billion

“Microsoft Cloud revenue crossed $50 billion this quarter, reflecting the strong demand for our portfolio of services,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

“We exceeded expectations across revenue, operating income, and earnings per share.”

While Azure revenue rose 39% (beating stimates of 37.8%), it was down slightly from the first-quarter's 40% growth rate.

Additionally, Cloud gross margin also fell YoY to 67%.

Operating income beat expectations at $38.28 billion (versus a consensus estimate of $36.55 billion)

But Capital Expenditures were considerably higher than expected at $29.99 billion (versus consensus estimate of $23.78 billion).

• Capital expenditures including assets acquired under finance leases were $37.5 billion, up 66% to support customer demand for our cloud and Al offerings. Roughly two-thirds of capital expenditures were for short-lived assets, primarily GPUs and CPUs, which support Azure platform demand, growing first-party applications and Al solutions, accelerating research and development by our product teams, as well as continued replacement for end-of-life server and networking equipment.

• The remainder of capital expenditures were for long-lived assets which will support monetization over the next 15-year period and beyond. Finance leases, which are primarily for large datacenter sites, were $6.7B and are recognized at the time of lease commencement.

• Cash paid for property and equipment was $29.9 billion, up 89%, lower than capital expenditures primarily due to finance leases

Additionally, following the renegotiation of their deal, Microsoft says net gains from OpenAI investments totaled $7.6B, but more notably, 45% of Commercial Remaining Performance Obligations (RPO) are due to OpenAI commitments.

"Commercial remaining performance obligations...increased to $625B, up 110% Y/Y, with a weighted average duration of ~2.5 years," said CFO Hoods.

"Roughly 25% will be recognized in revenue in the next 12 months, up 39% Y/Y. The remaining portion recognized beyond the next 12 months increased 156% Y/Y. ~45% of our commercial RPO balance is from OpenAI. The significant remaining balance grew 28% Y/Y and reflects ongoing broad customer demand across the portfolio."

How's that for concentration?

The OpenAI investment lifted per-share earnings by $1.02.

"In the second quarter of fiscal year 2026, net income and diluted earnings per share were impacted by net gains from investments in OpenAI, which resulted in an increase in net income and diluted earnings per share of $7.6 billion and $1.02, respectively."

The result of all this was selling pressure hitting MSFT (down over 8% after hours)...

It's unclear exactly what is triggering the selling pressure, but could it be that too much CapEx is now bad news not good news? Or is that Azure growth slowed?

After this, investors will want a guide that either explicitly shows Azure accelerating or strongly suggests it, despite the fact that the Street  has growth decelerating about -150 bps sequentially. As such, investors believe that the guide needs to be ‘approximately’ +38% Y/Y – perhaps a point higher.

Tyler Durden Wed, 01/28/2026 - 16:16

Amazon Exits Experimental Grocery Stores, Will Focus On Whole Foods, 'Supercenters'

Amazon is shutting down its Amazon Go and Amazon Fresh grocery stores, marking a significant retrenchment from its most ambitious efforts to reinvent brick-and-mortar food retail. The move reflects the company’s conclusion that, despite years of experimentation, it has not yet found a physical grocery model that can scale profitably under the Amazon brand.

Photo: Ted S. Warren, AP

According to the company, Amazon Go and Amazon Fresh locations will all be shuttered by Feb. 1, with the exception of California locations which will remain open longer to comply with state requirements. Some of the shuttered locations will be converted into Whole Foods Market stores, underscoring where Amazon now sees durable value in physical grocery retail.

In short, Amazon is closing physical stores, but you can still order Amazon Fresh online for same-day delivery if they serve your address. 

“While we’ve seen encouraging signals in our Amazon-branded physical grocery stores, we haven’t yet created a truly distinctive customer experience with the right economic model needed for large-scale expansion,” Amazon's PR zoomers vomited forth in a blog post announcing the decision.

At the time of the announcement, Amazon operated 57 Amazon Fresh stores and 15 Amazon Go locations. The closures mark a sharp contrast with the performance of Whole Foods Market, which Amazon acquired in 2017. Since the acquisition, Whole Foods has delivered more than 40% sales growth and expanded to over 550 locations. Amazon said it plans to open more than 100 additional Whole Foods stores in the coming years.

The retreat does not signal an exit from groceries. Instead, Amazon is consolidating around areas where it believes it holds a structural advantage; online ordering, rapid delivery, and logistics at scale. The company said customers will continue to be able to shop Amazon Fresh online, with grocery delivery now available in roughly 5,000 U.S. cities and towns, including thousands with same-day delivery of produce and perishables alongside household staples. Amazon said it plans to expand same-day fresh grocery delivery further this year, citing strong customer feedback.

Amazon’s physical grocery experiments were closely watched as a test of whether technology could meaningfully reshape a notoriously low-margin business. Amazon Go stores, which debuted in Seattle in 2018, eliminated traditional checkout lines by using cameras and sensors to automatically charge customers as they left the store. Amazon Fresh stores, launched in 2020, combined national brands, fresh food and technology-enabled shopping features in a more conventional supermarket format.

While customers responded positively to some of these innovations, Amazon acknowledged that the stores did not yet deliver a compelling economic model. Grocery retail remains highly sensitive to real estate costs, labor, pricing pressure and operational complexity - factors that even Amazon’s technology could not easily overcome.

Importantly, Amazon is not abandoning the technology developed for these stores. The company said its Amazon Go locations served as “innovation hubs” for its “just walk out” checkout system, which is now deployed in more than 360 third-party locations across five countries. Amazon is also expanding the technology internally, with more than 40 North American fulfillment centers using it in employee breakrooms to speed food purchases, with additional locations planned.

At the same time, Amazon said it will continue to test new physical formats. The company revealed plans for a “new supercenter” concept that would allow customers to shop fresh groceries, household essentials and general merchandise in a single location, though it did not provide details on timing or scale. It is also piloting a new “Amazon Grocery” format embedded within select Whole Foods stores, allowing customers to shop for Amazon household essentials alongside traditional grocery items.

h/t Capital.news

Tyler Durden Wed, 01/28/2026 - 15:45

Tesla Earnings Preview: Robotaxis, Optimus, Energy All In Focus Heading Into 2026

Tesla is set to report its fourth-quarter earnings after the market closes today, and while the headline numbers will matter, most investors are far more focused on what Elon Musk says about the company’s future.

The earnings call that follows the report is expected to center on artificial intelligence, self-driving technology, robotaxis, and Tesla’s humanoid robot, Optimus. With the company’s traditional car business under pressure, this quarter is shaping up to be less about past performance and more about whether Tesla can convince Wall Street that its next chapter is still on track.

Wall Street consensus points to earnings of about 45 cents per share on roughly $25 billion in revenue, down from last year. Operating income is expected to be just over $1 billion, and gross margins are likely to hover near 17%, reflecting ongoing pricing pressure. Free cash flow is forecast to come in around $1.5 billion, while capital spending remains elevated as Tesla continues investing in factories, AI infrastructure, and new products. 

The automotive business remains Tesla’s biggest challenge. Vehicle deliveries fell sharply in the fourth quarter, and the loss of key tax credits, rising competition, and heavier use of discounts have all weighed on demand and margins. Analysts are closely watching automotive gross margin, excluding regulatory credits, as a measure of Tesla’s true pricing power. Many expect it to come in near 14% to 15%, down from recent quarters. This reflects a reality that Tesla is no longer operating in a wide-open EV market and must now fight harder for every sale.

Tesla delivered 418,227 vehicles in Q4 2025, below Wall Street’s expectation of roughly 426,000 deliveries, according to CNBC and the company. Production totaled 434,358 vehicles. For the full year, Tesla delivered 1.64 million vehicles in 2025, down 9% from 2024 and marking the second consecutive annual decline in deliveries.

That internal survey of 20 analysts projected 422,850 deliveries for the quarter, far below the broader public consensus at the time, which ranged from roughly 440,000 to 450,000 vehicles. Even Tesla’s lowered benchmark proved too high.

Fourth-quarter deliveries declined 16% from a year earlier, when Tesla delivered 495,570 vehicles. Production fell 5.5% from the 459,445 vehicles the company built in the same period last year.

In contrast, Tesla’s energy division is widely expected to be a bright spot. The company continues to see strong demand for its Megapack battery systems, especially from data centers and AI companies building out massive computing infrastructure. Tesla deployed a record amount of energy storage during the quarter, and analysts expect revenue from the segment to approach $4 billion, up more than 20% from a year ago. Some analysts believe this business could become a steady, high-margin growth engine over time, helping offset weakness in car sales.

Robotics and artificial intelligence remain more speculative but are central to Tesla’s long-term story. Optimus, the company’s humanoid robot, is still largely in the prototype stage, but investors are eager to hear whether it is getting closer to real production.

Analysts want updates on manufacturing readiness, cost, and practical use cases inside Tesla’s factories. Elon Musk has said he expects robot sales to begin next year, but his history of aggressive timelines makes many on Wall Street cautious.

The biggest wild card, however, is robotaxis and full self-driving technology. Tesla has begun limited unsupervised rides in Austin, removing safety drivers in some vehicles, which Musk has called a major milestone. Analysts are watching closely to see how quickly Tesla can expand this service to other cities and whether regulators will allow broader use. 

Several analysts have laid out their views ahead of the report. Wedbush’s Dan Ives, one of Tesla’s biggest supporters, believes autonomous driving could give Tesla dominant market share over the next decade and has argued that robotaxis could become a massive profit driver.

In contrast, Oppenheimer has warned that Tesla’s AI and robotics progress has been slower than expected and that delays could hurt future earnings. Shay Boloor of Futurum Equities has summarized the debate by saying investors now see Tesla less as a car company and more as an “AI platform with physical products,” meaning expectations are extremely high.

Musk himself has added to the sense of anticipation in recent weeks.

He has said that Tesla’s robotaxis in Austin are operating without in-car safety monitors, that Full Self-Driving could soon receive approval in Europe and China, and that Optimus robots could be sold to consumers within the next couple of years. He has also spoken about his various companies “converging” over time, especially with AI, energy, and robotics overlapping more closely. These comments have energized supporters but also raised the bar for what Tesla needs to deliver.

Investors will soon know whether Tesla’s core business is stabilizing, whether energy can keep growing at its current pace, and whether robotaxis and robots are moving from vision to execution. If management provides clear timelines and concrete progress, the market may be willing to look past a weak quarter.

If the discussion stays vague or ambitious promises slip again, doubts about Tesla’s long-term story could deepen. Either way, the answers are only hours away.

Tyler Durden Wed, 01/28/2026 - 15:30