The technology giant reported a record capital expenditure of nearly $35 billion for its fiscal first quarter on Wednesday and warned spending would rise this year, in a reversal of its earlier prediction that it would moderate.

Microsoft’s shares fell nearly 4% in extended trading. Alphabet and Meta Platforms also warned of higher spending as Big Tech works to overcome capacity bottlenecks that have hampered companies’ ability to fully cash in on booming AI demand.

But the rising spending, as well as soaring valuations of tech companies and limited evidence of productivity gains for businesses adopting AI, has raised fears of a bubble reminiscent of the 1990s dot-com boom and collapse. Key Microsoft partner and ChatGPT creator OpenAI is also at the center of a web of circular deals and has committed to buy more than $1 trillion in computing power with little detail on how it will fund that purchase.

For now, though, the outlay for Microsoft is paying off. Microsoft’s Azure cloud-computing business grew 40% in the July-September period, outpacing Visible Alpha’s estimate of 38.4%. The company’s current-quarter Azure growth forecast of 37% was also slightly ahead of estimates of 36.4%.

Chief Financial Officer Amy Hood told analysts on a call that growth could have been higher without the capacity constraints, which Microsoft expects will continue at least until the end of its current fiscal year, in June 2026. Total revenue would be $79.5 billion to $80.6 billion in the current quarter, Microsoft said. Analysts polled by LSEG on average expected $79.95 billion.

“The capex number was a little bit worrisome,” Bob Lang, chief options analyst at Explosive Options, said of the decline in Microsoft shares.

–Reuters–