After the U.S. market closed on Wednesday, tech giant Microsoft (MSFT) released a quarterly report that appeared robust yet triggered significant stock volatility. For the second quarter of fiscal year 2026, ending December 31, the company’s revenue and profit both exceeded market expectations. However, subtle shifts in the growth rate of its key cloud services and record-breaking capital expenditures touched a nerve among investors, leading to a notable decline in its after-hours stock price.
According to the earnings report, Microsoft’s revenue for the quarter reached $81.27 billion, a year-over-year increase of approximately 17%, surpassing general market expectations. Net profit soared to $38.46 billion, with adjusted earnings per share also beating estimates. It is worth noting that the substantial surge in net profit was partly attributable to non-recurring gains from changes in the accounting treatment of its investment in OpenAI, which contributed $1.02 per share to earnings.
The “Intelligent Cloud” segment, serving as the growth engine, reported revenue of $32.91 billion for the quarter, a nearly 29% year-over-year increase. Microsoft’s overall cloud business revenue surpassed the $50 billion mark for the first time. However, the revenue from Azure and other cloud services, which is closely watched by the market, grew by 38% year-over-year on a constant currency basis. While this met expectations, it marked a one-percentage-point slowdown compared to the previous quarter. Some market participants view this subtle change as an early signal that the AI-driven cloud growth narrative may face fluctuations.
Even more alarming to the market is Microsoft’s sharply rising capital expenditures. This quarter, such spending reached $37.5 billion, a substantial 66% year-over-year increase, primarily allocated toward acquiring computing chips to build data centers capable of meeting AI-related demands. CEO Satya Nadella revealed that nearly one gigawatt of computing capacity was added in this quarter alone. Despite strong demand, the massive investment and the current tight supply of production capacity have sparked concerns that the payback period for AI investments might be excessively long.
Meanwhile, Microsoft disclosed a new record high in “remaining performance obligations”—future revenue from signed but yet-to-be-recognized contracts—amounting to $625 billion. However, as much as 45% of this stems from agreements with OpenAI, highlighting Microsoft’s deep reliance on this AI startup. The substantial cloud services commitment agreement reached between the two parties this quarter, while locking in long-term revenue, has intensified investor scrutiny over the independence of Microsoft’s core cloud business growth and its underlying risks.
Analysis points out that with the strong performance of Google’s Gemini model and the emergence of competitors like Anthropic, Microsoft’s AI business and traditional software are facing increasing competitive pressure. Some analysts believe that Microsoft’s stock sentiment is closely tied to OpenAI’s performance—a factor that is difficult to control in the current competitive landscape.
As of Wednesday’s close, Microsoft’s stock price stood at $481.63. After the earnings release, its after-hours trading price fell by more than 7% at one point. Over the past three months, the stock has declined by approximately 11%, significantly underperforming the broader market during the same period. This may indicate that after the AI boom, investors are returning to rationality, assessing the long-term return prospects of tech giants’ massive capital expenditures with a more cautious eye.
