Microsoft’s Record Quarter Overshadowed by OpenAI Rethink and $190 Billion Infrastructure Tab

Microsoft beats Q3 estimates but stock falls 5% as revised OpenAI pact ends cloud exclusivity and $190B capex plan pressures margins.

Microsoft delivered a blowout fiscal third quarter on April 30, 2026, yet the stock shed nearly 5% in the session as investors digested a renegotiated OpenAI contract that ends the tech giant’s cloud exclusivity and a capital expenditure plan that is straining margins. The Redmond, Washington-based company reported revenue of $82.9 billion, up 18% year-over-year, and net income of $31.8 billion, a 23% jump. Diluted earnings per share of $4.27 comfortably beat the consensus estimate of $4.05.

The market’s lukewarm reaction, however, reflects a growing divide between Microsoft’s operational firepower and the financial burden of its artificial intelligence ambitions. Shares closed at €363.40 in European trading, roughly 26% below their 52-week high from last summer and down nearly 15% year-to-date. The relative strength index has fallen to 20, signaling that the stock is technically deeply oversold after weeks of selling pressure.

OpenAI Pact Rewritten, Exclusivity Ends

The most consequential development of the quarter was the overhaul of Microsoft’s partnership with OpenAI. Under the revised terms, the software giant loses its exclusive right to host OpenAI’s models on its Azure cloud platform. OpenAI can now offer its technology through Amazon Web Services and Google Cloud, and has already committed to an $100 billion spending program with AWS over eight years.

In exchange, Microsoft secured a 20% revenue share of OpenAI’s total sales — encompassing ChatGPT subscriptions and API services — through 2030. Its existing 27% equity stake in the AI lab remains unchanged, as does its royalty-free access to OpenAI’s models until 2032. Chief Executive Satya Nadella said Microsoft intends to fully exploit that non-exclusive license over the next six years, though the stock’s decline suggests investors remain wary of the competitive implications.

Azure and Copilot Surge, but Costs Bite

The core business continued to fire on all cylinders. Azure grew 40% in the quarter, while Microsoft’s AI business hit an annualized revenue run rate of $37 billion — a 123% increase from a year earlier. Microsoft 365 Copilot now counts more than 20 million paying users, up from 15 million in January and representing a 250% surge year-over-year. Nadella described the AI assistant as having become as habitual for users as Outlook.

The company’s contracted future revenue backlog nearly doubled to $627 billion, with roughly a quarter of that sum expected to convert into revenue over the next twelve months. Excluding the OpenAI partnership effects, the backlog still grew a solid 26% organically.

Yet the cost of this expansion is mounting. Capital expenditures for the full fiscal year 2026 are projected at around $190 billion. In the third quarter alone, Microsoft poured $31.9 billion into infrastructure — 49% more than the prior year — and that figure is expected to climb above $40 billion in the fourth quarter as data center capacity constraints persist through the end of 2026. Approximately $25 billion of the annual budget is attributed to higher prices for memory and processors. The gross margin has slipped to its lowest level since 2022 as depreciation charges from the data center buildout accelerate.

Efficiency Drive and Fourth-Quarter Outlook

Management is responding with a belt-tightening campaign. Unlike many Big Tech peers, Microsoft plans to further reduce its headcount in the coming year, with operating expenses expected to rise only in the mid-to-high single-digit percentage range. Chief Financial Officer Amy Hood signaled that Copilot subscriber growth should accelerate again in the current quarter.

For the fiscal fourth quarter, Microsoft guided for revenue between $86.7 billion and $87.8 billion, with Azure growth of 39% to 40%. Despite lingering infrastructure bottlenecks, the executive team expects cloud growth to pick up modestly in the second half of the year. Starting June 1, 2026, the company will shift GitHub Copilot to a consumption-based billing model, a pricing approach that is expected to roll out to other AI services in the future.

Analysts remain broadly constructive. Goldman Sachs reiterated its buy rating with a $600 price target, while Piper Sandler lifted its target from $500 to $540. The tension between record operational metrics and a stock trading near oversold levels suggests that investors are no longer rewarding top-line growth without evidence that the massive AI spending will translate into sustainable profitability. If Copilot subscriptions continue their torrid pace and the $627 billion backlog converts as planned, Microsoft may have the raw material for a fundamental re-rating.