- Microsoft (NASDAQ:MSFT) shares fell about 10 per cent after earnings, as investors focused on slowing Azure cloud growth despite the company beating revenue and EPS expectations
- Margin pressure and heavy AI spending raised concerns, with operating margin guidance coming in below forecasts and nearly US$38B in quarterly capex tied to expanding AI infrastructure
- OpenAI accounted for 45 per cent of Microsoft’s massive US$625B backlog, drawing analyst scrutiny even as bookings surged and cloud and productivity segments outperformed
- Microsoft stock (NASDAQ:MSFT) opened trading at US$480.96
Microsoft (NASDAQ:MSFT) shares fell roughly 10 per cent at Thursday’s open, despite the software giant delivering fiscal Q2 2026 results that topped Wall Street expectations on both earnings and revenue. Investors appeared focused instead on signs of slowing Azure cloud growth, narrowing margins, and a rising dependence on OpenAI‑related revenue commitments.
The company reported adjusted earnings per share of US$4.14, beating the US$3.97 expected by LSEG consensus. Revenue came in at US$81.27 billion, ahead of forecasts for US$80.27 billion.
But the stock sold off as Microsoft’s closely watched cloud metrics signaled potential cooling. Azure and other cloud services grew 39 per cent, down from 40 per cent the prior quarter. While still robust, the figure came in slightly below some analyst expectations, with StreetAccount and CNBC surveys calling for 39.4 per cent and 38.9 per cent respectively.
Guidance meets expectations — but margins disappoint
For the fiscal third quarter, Microsoft guided to US$80.65 billion to US$81.75 billion in revenue, with the midpoint essentially matching the LSEG consensus of US$81.19 billion. Azure growth guidance of 37 per cent to 38 per cent at constant currency also aligned with expectations.
However, Microsoft’s implied operating margin of 45.1 per cent fell short of the 45.5 per cent StreetAccount consensus. The company cited ongoing investments in AI computing capacity, data centers, and specialized technical talent as the key drivers of elevated spending.
“We must balance incoming supply with growing Azure demand as well as first‑party AI usage,” CFO Amy Hood told analysts, referencing increased load from products such as Microsoft 365 Copilot and GitHub Copilot.
AI momentum drives bookings — and raises new concentration risks
Microsoft’s commercial remaining performance obligation (RPO) surged to US$625 billion, up an eye‑popping 110 per cent year over year, largely due to OpenAI’s US$250 billion cloud commitment recorded during the quarter. The company disclosed that 45 per cent of its commercial RPO is tied to OpenAI.
That concentration sparked debate among analysts.
“The backlog is really good, but the disclosure that OpenAI is 45 per cent of their backlog… can OpenAI achieve these financial goals?” asked Jefferies analyst Brent Thill on CNBC.
Hood defended the company’s broader customer base, noting that the remaining 55 per cent of RPO — growing 28 per cent — was “larger than most peers” and well‑diversified. Microsoft also reiterated that it remains OpenAI’s “provider of scale.”
Commercial bookings grew 230 per cent, up sharply from 112 per cent in the previous quarter.
Cloud and productivity units shine; gaming and personal computing lag
Microsoft’s segments posted mixed results:
- Intelligent cloud:
Revenue of US$32.91 billion, up nearly 29 per cent and beating StreetAccount’s US$32.40 billion estimate. - Productivity and business processes:
Revenue of US$34.12 billion, up 16 per cent and surpassing the US$33.48 billion consensus. - More personal computing:
Revenue of US$14.25 billion, down 3 per cent and missing estimates of US$14.38 billion.
The company noted gaming revenue declined 9.5 per cent, partly due to an unspecified impairment charge. The move adds to ongoing concerns about Microsoft’s gaming division, which has faced strategic uncertainty and public criticism — including comments from former Xbox executive Mike Ybarra, who briefly described the division’s strategy as “confusing” in a now‑deleted social media post.
AI infrastructure spending soars
Microsoft continues to expand aggressively to meet generative AI demand. Capital expenditures and finance leases hit US$37.5 billion, up 66 per cent, as the company added nearly one gigawatt of new capacity in the quarter.
Customer demand “continues to outstrip supply,” Hood said, driving the company to accelerate data center build‑outs and replace aging equipment. The company also highlighted increasing AI workloads from external partners, including Anthropic, which recently committed up to US$30 billion in cloud services and additional computing purchases from Microsoft.
Microsoft 365 Copilot adoption gains momentum
For the first time, Microsoft disclosed that 15 million users now have access to Microsoft 365 Copilot, the company’s flagship AI productivity add‑on. With 450 million paid commercial Microsoft 365 seats, executives emphasized significant runway for further adoption and per‑seat revenue expansion.
Why the stock fell
Despite the strong headline results, Wall Street homed in on:
- Slowing Azure growth
- Margin compression driven by heavy AI investments
- Heightened reliance on OpenAI for future revenues
- Gaming and personal computing weakness
- Rising questions about whether AI economics can sustain long‑term cloud profitability
Microsoft shares have dropped 11 per cent over the past three months, even as the broader S&P 500 has gained 1 per cent, with investors increasingly weighing whether generative AI—while a major growth driver—could also pressure traditional software margins and reshape customer spending patterns.
About Microsoft
Microsoft Corp. develops and supports software, services, devices, and solutions. The company’s segments include productivity and business processes, intelligent cloud, and more personal computing.
Microsoft stock (NASDAQ:MSFT) opened trading around 10 per cent lower at US$439.99 but has risen 3.23 per cent since this time last year. Its stock has lost 11 per cent in the month of January.
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