Microsoft Shares Slide as Investors Question AI Spending Pace

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Despite posting record-breaking financial results, Microsoft Corporation saw its stock price tumble approximately 10% in recent trading. The decline highlights a shift in investor sentiment, where concerns over rising capital expenditures and a moderating growth rate in the crucial Azure cloud business are overshadowing impressive top and bottom-line figures.

For its fiscal second quarter of 2026, the technology giant reported revenue of $81.3 billion, a 17% year-over-year increase that surpassed analyst expectations of $80.3 billion. Adjusted earnings per share came in at $4.14, also beating the consensus estimate of $3.97. Operating income saw a robust 21% climb to $38.3 billion.

A landmark achievement was recorded by the Microsoft Cloud segment, which surpassed $50 billion in quarterly revenue for the first time, reaching $51.5 billion—a 26% gain. The commercial remaining performance obligation, a measure of future revenue, surged by 110% to $625 billion. It is noted, however, that nearly half of this amount is tied to a cloud commitment with OpenAI.

The Core Concerns: Azure Growth and Soaring Capex

The market's negative reaction stemmed not from poor performance, but from perceived cracks in the growth narrative. Revenue growth for Azure and other cloud services decelerated to 39%, down from 40% in the prior quarter. This slight moderation was enough to unsettle investors.

Simultaneously, the company's capital expenditures ballooned. Investment in data centers and equipment hit $37.5 billion for the quarter, a 66% jump from the previous year and well above the anticipated $34.3 billion. Approximately two-thirds of this sum was allocated to short-lived assets like GPUs and CPUs to power artificial intelligence applications.

Leadership defended the aggressive spending. CEO Satya Nadella stated, "We are still in the early stages of AI diffusion, and Microsoft has already built an AI business larger than some of our biggest franchises." CFO Amy Hood added that customer demand continues to outpace supply, making further investment unavoidable.

Margin Compression and Cautious Guidance

The substantial investments are impacting profitability. The company's gross margin stood at 68%, its narrowest point in three years. For the current third fiscal quarter, Microsoft projected an operating margin of 45.1%, slightly below the 45.5% analysts had forecast.

Revenue guidance was set between $80.65 billion and $81.75 billion. The company also anticipates Azure growth, in constant currency, to slow further to a range of 37% to 38%. While this outlook met consensus estimates, it lacked the positive surprise investors had hoped for.

Segment Performance: A Mixed Picture

Breaking down the results reveals divergent trends across business units:
* Productivity and Business Processes generated $34.1 billion in revenue, up 16%. Microsoft 365 Copilot showed strong adoption, with paid licenses jumping over 160% to 15 million.
* Intelligent Cloud revenue was $32.9 billion, a 29% increase.
* More Personal Computing revenue declined 3% to $14.3 billion. Within this segment, gaming revenue fell 9%, while Xbox content and services revenue was down 5%.

Investor Patience Wears Thin

Microsoft shares recently traded at $425.11, significantly below their 52-week high of $488.02 reached in December. The stock has declined over 9% in the past week and is down more than 10% since the start of the year.

The market's message is clear: stellar financials alone are no longer sufficient. Investors are demanding clear signals that Microsoft's multi-billion dollar bet on artificial intelligence will translate into sustainably accelerated growth without permanently eroding profitability. The coming quarter will be a critical test of whether Azure can move past this growth deceleration.