JPMorgan estimates Microsoft Cloud ROIC will fall to about 37% in FY26

Microsoft Cloud is still growing fast. It is just getting more expensive to grow. JPMorgan estimates that Microsoft Cloud’s return on invested capital will drop from 54% in FY24 to about 37% in FY26. The bank then expects that figure to level off around 32%-33% from FY27 through FY31. What JPMorgan is actually projecting Return on invested capital, or ROIC, measures how much profit a business squeezes out of the money it has poured into itself. The projected decline is primarily tied to rising capital expenditures on AI infrastructure. That spending is expected to outpace growth in net operating profit after tax, known as NOPAT. Microsoft is buying servers, chips and data centers faster than those assets can turn into profit. The 54%-to-37% slide over two fiscal years captures that gap. JPMorgan projects stabilization in the 32%-33% range for five straight fiscal years, FY27 through FY31. That implies a new normal rather than a freefall. Revenue is not the problem Microsoft Cloud generated $214 billion in revenue in FY26, a 27% increase year over year. Azure revenue jumped 41% in one quarter. The issue is the cost of serving customers. AI workloads are hungry for computing power, a...