Microsoft Splits the Difference: Job Cuts and In-House AI Models Meet $270 Billion CapEx Plan
Published on 07/12/2026 at 17:35 | Redaktion boerse-global.de
Microsoft is walking a tightrope that few companies of its size have ever attempted. On one side, management is slashing thousands of jobs, rethinking its reliance on external AI partners like OpenAI and Anthropic, and urging staff to frame layoffs as "restructuring." On the other, the company plans to pour a staggering $270 billion into capital expenditure by fiscal 2027 — a figure that has forced at least three Wall Street houses to slash their price targets this month alone.
The tension between cost discipline and runaway AI spending will come to a head on July 29, when Microsoft reports fiscal fourth-quarter results after the closing bell. Until then, the stock remains stuck in a months-long slide that has erased roughly 30% of its value from the October 2025 peak of €478.10. On Friday, shares in Frankfurt closed at €337.45, up 0.33% on the day but still down 1.33% for the week, 2.16% for the month, and a bruising 21.30% over the past twelve months.
Wall Street Wields the Red Pen
Three analysts have lowered their price targets in rapid succession, all citing the same culprit: an explosion in AI-related capital expenditure. Argus’s Joseph Bonner chopped his target from $620 to $510 but kept a "Buy" rating, arguing that Microsoft’s long-term cloud and AI growth story remains intact. Wolfe Research’s Alex Zukin followed suit, trimming from $570 to $525 while maintaining an "Outperform," after rising memory-chip prices — flagged in Micron’s latest quarterly report — forced a drastic revision of Microsoft’s CapEx outlook.
Zukin now sees fiscal 2027 capital spending at $270 billion, up from a prior estimate of $230 billion. The implications for Microsoft’s balance sheet are stark: instead of a free cash flow of roughly $14.7 billion, Wolfe forecasts a deficit of $17.4 billion — a swing of more than $48 billion below the consensus estimate of $31 billion. Zukin also lowered his 2027 gross margin forecast to 63.1% from 64.0%, well under the street’s 66.6%, and trimmed his earnings-per-share estimate by 1% to $19.02. BMO Capital added its own reduction, dropping its target to $500 from $515.
Should investors sell immediately? Or is it worth buying Microsoft?
Despite the wave of cuts, the analyst community remains broadly bullish. Of 37 analysts covering the stock, 35 rate it a "Buy" and only two say "Hold," keeping the consensus at "Strong Buy."
Nadella’s Messaging Playbook
Amid the financial pressure, CEO Satya Nadella is waging a parallel campaign inside the company to control the narrative around job cuts. He has urged managers to use the phrase "Here is what is changing" as a way to frame workforce reductions as reorganizations rather than layoffs — what he calls a "social license" for restructuring. The timing is delicate: in early July, Microsoft cut roughly 4,800 positions, or about 2.1% of its global headcount. An additional 3,200 jobs are being eliminated in the gaming division, representing roughly 20% of the Xbox workforce, as part of an effort to revive that struggling segment.
Microsoft is quick to point out the other side of the ledger. Over the past year, it has moved more than 4,000 employees into new roles, including 500 in July alone. Four gaming studios now operate under new management. The stock edged slightly higher on Friday afternoon after Nadella’s internal message became public.
In-House AI Takes Center Stage
At the same time, Microsoft is quietly reshaping its cost structure for artificial intelligence. The company is replacing models from OpenAI and Anthropic with its own MAI technology across products such as Excel and Outlook. Tens of thousands of AI queries per week are now handled internally. Analysts see the move as a margin-improvement play: swapping expensive external inference for in-house models cuts the cost of Copilot significantly.
The shift also reduces Microsoft’s dependence on partners at a time when its own AI infrastructure spending is under review. Whether the savings will be enough to offset the $270 billion CapEx plan — or the drag from lower margins — is the central question heading into earnings.
Microsoft at a turning point? This analysis reveals what investors need to know now.
Technical Picture Offers Little Comfort
The chart tells a story of persistent weakness. The stock at €337.45 sits 29% below its 52-week high and barely 10% above the low of €307.10 set in June. Both the 50-day moving average (€348.17) and the 200-day moving average (€378.98) loom overhead, with the latter almost 11% above the current price. The relative strength index of 49.1 signals no clear direction, while annualized volatility of 34.42% suggests more turbulence ahead.
The divergence from the broader market is hard to ignore. Over the past twelve months, the S&P 500 has gained 20% and the tech-heavy Invesco QQQ ETF has rallied 30% — yet Microsoft, in dollar terms, has lost 23%. That gap points to investor skepticism specific to Microsoft’s strategy, not a general tech downturn.
A Report That Could Set the Tone
With cost cuts on one side and a record investment plan on the other, the July 29 earnings release will be the first real test of whether Nadella’s balancing act is working. If the numbers show that the internal AI switch and workforce restructuring are beginning to protect margins, the stock may finally find its footing. If not, the gap between Microsoft and the market could widen further.
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