Nvidia has been one of the biggest winners of the AI boom, but its stock has cooled off as investors fret that Big Tech is overspending on data centers. The shares climbed more than 1,200% over the past three calendar years, yet they’re up only about 13% so far in 2026.
The stock has at least held up better than most. When AI and chip stocks lost more than $1 trillion in combined value during one week in mid-October, Nvidia fared better than many of its peers. Now one of its biggest customers has offered a fresh reason for optimism. Microsoft’s latest report showed where its AI money is going, and much of it is landing on chips.
Microsoft’s spending tilts heavily toward chips
Microsoft reported its fiscal first-quarter results on October 28, posting revenue of $92.3 billion, up 19% from a year earlier, while its Azure cloud business grew 48%, according to Microsoft. Net income rose 32% to $36.6 billion. Strong cloud demand like that is exactly what keeps chip orders flowing.
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The detail that matters most for Nvidia came in the spending breakdown. Roughly three-quarters of Microsoft’s $45.2 billion in quarterly capex went toward “short-lived assets,” a group that includes CPUs, GPUs, and data center networking gear. That works out to roughly $34 billion in a single quarter, much of it on the kind of hardware Nvidia sells.
Microsoft isn’t easing off, either. The company expects capex to top $50 billion in the second quarter and has guided for about $170 billion in calendar-year spending, with the increase driven by CPUs and GPUs. It also said it expects to remain cash-flow positive.
Microsoft is spending because customers keep asking for more. Capex, including finance leases, actually came in a bit below analyst forecasts, yet the company guided for Azure growth of 49% to 50% next quarter and said Copilot users jumped 50% from the prior quarter, SiliconANGLE reported. “We still have demand that exceeds supply,” chief financial officer Amy Hood said.
Why this matters so much for Nvidia
Nvidia leans heavily on customers like Microsoft. In its fiscal second quarter, Nvidia’s revenue more than doubled to $96.2 billion, and its data center business brought in $89 billion of that, up 117% from a year earlier, according to Nvidia. That means data centers account for about 92% of total sales. Net income rose 126% to $59.7 billion.
That concentration cuts both ways. Strong cloud spending can send Nvidia’s results soaring, but any pullback by the biggest buyers would hit it hard. That’s why investors pore over every capex update from Microsoft, Alphabet, Amazon and Meta.
The near-term outlook looks solid. Nvidia has guided third-quarter revenue to about $108 billion, give or take 2%, without counting any data centre compute sales to China, as reported by Nvidia. Its next report, due in November, will show whether Big Tech’s spending is still flowing through to its top line.
The CPU angle adds another wrinkle. Nvidia recently launched its first stand-alone CPU, called Vera, built specifically to power AI agent workloads. If Microsoft’s spending on CPUs keeps rising, Nvidia now has a product to compete for a share of that money too.
The AI spending fears haven’t gone away
Not every tech giant got the same reception this week. Alphabet’s shares fell about 10% after hours following a disappointing search business and negative free cash flow, while Microsoft rose more than 5% partly due to positive free cash flow. Even so, Alphabet plans to lift 2027 capital spending above this year’s $195 billion to $205 billion forecast, which is more good news for chip suppliers.
The split shows what investors want now. Capital.com analyst Daniela Hathorn said the Alphabet and Microsoft results offered “competing narratives” on whether AI is paying off. Spending alone no longer earns applause. Companies have to show it’s turning into revenue.
The bigger picture still favours chipmakers. Goldman Sachs expects the five largest U.S. hyperscalers to lift AI infrastructure spending to $1.2 trillion in 2027, up from roughly $800 billion this year, according to TheStreet. Its model shows capex growth stepping down to 54% in 2027 and just 12% in 2028. The bank also estimates these companies need about $300 billion in yearly AI revenue just to break even.
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Other big customers are lining up too. Elon Musk said SpaceX’s new computing capacity next year will be mostly Nvidia’s Vera Rubin chips, and Jensen Huang has pointed to at least $1 trillion in orders for Blackwell and Vera Rubin through 2027.
What it means for Nvidia shareholders
The stock has lagged its own business. Nvidia gained 239% in 2023, 171% in 2024 and 39% in 2025, but its forward price-to-earnings ratio had fallen to about 23.2 by July, trading near parity with the S&P 500. That’s a sharp change from years of trading at a steep premium.
Microsoft’s numbers suggest the spending story is still intact. One of Nvidia’s largest customers put about three-quarters of its quarterly capex into chips and networking gear and plans to spend about $170 billion in fiscal 2027, according to Microsoft. With commitments like that on the table, it’s hard to argue that demand is drying up anytime soon.
There are risks. Nvidia depends on a small group of very large buyers, and many of them are now borrowing to fund the build-out. Morgan Stanley estimates AI-related global debt issuance will approach $570 billion in 2026, as reported by TheStreet. But for now, Microsoft is giving Nvidia shareholders exactly what they hoped to hear: the money is still flowing toward chips.
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