Microsoft Slides in After-Hours Trading Ahead of Earnings; All Eyes on AI Capex Outlook

Microsoft (MSFT) is set to report fiscal Q2 earnings after the bell on July 22, but the market has already moved past the current quarter's numbers, zeroing in on the longer-term AI capex outlook. As of 6:30 PM ET on July 22, Microsoft shares were trading at $390.34 in after-hours, down 1.86% from the prior close of $397.75. The stock hit an intraday low of $386.96 and a high of $401 during the regular session. The prior trading day (July 21), Microsoft fell roughly 2%, as worries over AI investment returns continued to simmer.^{[Business Insider]}

AI Capex Growth: 2027's 23% Forecast Faces Upward Pressure

Gene Munster, managing partner at Deepwater Asset Management, argues in a new note that in the hyperscaler capex debate, "next year's growth rate is the key metric." According to Munster, Wall Street currently expects 23% capex growth for the four major hyperscalers in 2027, but "whisper numbers" have already risen following Alphabet's $85 billion and Amazon's $25 billion fundraising rounds — funds earmarked for spending later this year and into next.^{[Business Insider]}

Munster believes that while AI trades look "tired," Q2 earnings are the one catalyst that could reignite momentum. He predicts that if three of the four hyperscalers raise their capex outlooks, "the AI infrastructure narrative will remain intact."^{[Business Insider]}

Microsoft: The "Weakest Link," But Not Enough to Derail the AI Infrastructure Boom

Munster explicitly calls Microsoft the "weakest link" in the hyperscaler chain. Despite its stock being down roughly 20% year-to-date, he argues that's not enough to break the AI infrastructure investment cycle. He expects Microsoft management to guide investors to maintain its 26% capex growth rate for 2027.^{[Business Insider]}

This view echoes broader market concerns about Microsoft's return on AI investment. On the prior trading day (July 21), Microsoft fell roughly 2%, as investors remained cautious about whether the company's massive AI spending will translate into sufficient revenue growth.^{[Business Insider]}

Google Earnings Preview: Doubling Capex Takes Center Stage

Before Microsoft reports, Alphabet (GOOGL) will release its results on Wednesday, July 23. Barron's reports that Wall Street expects Google's capital expenditure to double as it builds out the infrastructure needed to support AI.^[Barron's]

On CNBC's "Power Lunch," Jay Woods of Freedom Capital and Brian Vendig of MJP Wealth Advisors discussed the upcoming Big Tech earnings and how to trade the stocks.^[CNBC]

AI Bubble Debate Intensifies: $27 Trillion Market Value Surge Raises Concerns

The Atlantic published an article noting that AI-related companies have added $27 trillion in market value over the past three years — equivalent to 36% of the entire U.S. stock market. The piece cites Goldman Sachs analysts Dominic Wilson and Vickie Chang, who argue that while future earnings could justify these valuations, profit expectations require "extreme optimism." OpenAI CEO Sam Altman has also publicly stated, "We are in an AI bubble." The International Monetary Fund (IMF) has flagged it as a major financial stability risk, warning that a burst could lead to reduced investment, tighter credit, lower consumption, and disrupted trade flows.^{[The Atlantic]}

However, the article also notes that the current AI bubble is different from past ones: it is driven by ultra-wealthy corporations rather than retail investors, and it is occurring during a period of relatively high credit costs rather than rock-bottom rates. This could make the bubble harder to pop and longer-lasting — but no less painful when it does.^{[The Atlantic]}

Analyst and Market Reaction: Can Earnings Season Reignite AI Trades?

As Microsoft, Google, and other tech giants roll out their earnings, the market will be closely watching for tangible returns on AI investment. Munster believes that if hyperscaler capex outlooks fall short of expectations, AI trades could face further pressure. But if most players raise their guidance, the AI infrastructure narrative will be reinforced.^{[Business Insider]}

As of press time, Microsoft shares were trading at $390.34 in after-hours, down 1.86% from the prior close. Investors are waiting for concrete data in the earnings report on Azure cloud growth, AI service revenue contribution, and capex guidance to gauge Microsoft's position in the AI arms race.

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