Microsoft reported strong financial results on Wednesday, beating Wall Street expectations for both sales and profit. However, investors were not happy. The company’s stock fell 7% in extended trading.
The main reason for the drop is a slowdown in its cloud business and massive spending on Artificial Intelligence (AI). While the company earned $81.27 billion in revenue (beating the expected $80.27 billion), the growth of its key Azure cloud platform cooled down.
Cloud Growth Slows Down
Investors watch Microsoft’s Azure cloud business very closely. In the previous quarter, Azure grew by 40%. This quarter, growth slowed to 39%. While 39% is still high, it was slightly below what some analysts hoped for (39.4%). This signals that the explosive growth from the last year might be leveling off.
Spending Scares Investors
The other big story is how much money Microsoft is spending. The company reported capital expenditures (money spent on buildings and equipment) of $37.5 billion. This is a 66% increase and much higher than the $34.3 billion analysts expected. Microsoft is building massive data centers and buying special chips to run AI models. Because of these high costs, the company warned that its operating margins (profitability) for the next quarter would be lower than expected, coming in at around 45.1%.
First Look at AI User Numbers
For the first time, Microsoft revealed how many people are paying for its AI tool, Microsoft 365 Copilot. The company now has 15 million paid seats for the service. This shows strong adoption, but there is plenty of room to grow, as there are over 450 million total users who could eventually sign up.
The OpenAI Risk
A large part of Microsoft’s future is tied to OpenAI (the creators of ChatGPT).
- Backlog: Microsoft’s “commercial remaining performance obligation” (future revenue) jumped to $625 billion.
- The Risk: 45% of this backlog is tied to OpenAI. Some analysts are asking tough questions. Jefferies analyst Brent Thill noted the risk: “Can OpenAI achieve these financial goals to pay Oracle, Microsoft, and many of the providers?”
While the “Intelligent Cloud” and “Productivity” segments grew, other parts of the business struggled. The “More Personal Computing” unit fell 3%, and gaming revenue dropped 9.5%.
SOURCES
- CNBC (Microsoft Q2 2026 Earnings Report)
- LSEG Consensus Estimates
- StreetAccount Data
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