REDMOND, Wash., Jan 29, 2026, 07:29 PST
- Microsoft shares fell about 6.5% after hours after record capital spending and cloud growth that narrowly topped expectations.
- Azure revenue rose 39% in the quarter, and Microsoft forecast 37%–38% growth for the current quarter.
- CEO Satya Nadella disclosed 15 million annual users for Microsoft 365 Copilot as the company tries to show AI payback beyond cloud sales.
Microsoft shares slid in after-hours trade on Wednesday after the company posted slower cloud growth and a record $37.5 billion in capital spending, stoking fresh doubts about when its artificial intelligence push will translate into fatter margins. (Reuters)
The reaction matters because Microsoft has become a read-through for corporate AI demand and for how fast Big Tech can turn expensive chips and data centers into recurring revenue. Investors have leaned on Microsoft’s Azure cloud and its tight relationship with OpenAI as proof that the spending has a point.
Executives used the earnings call to widen the frame, pushing Wall Street to judge AI progress not only through Azure growth but also through sales of AI assistants like Copilot. The company also disclosed core usage metrics for Copilot for the first time, Reuters reported.
Microsoft said revenue rose 17% to $81.3 billion for its fiscal second quarter ended Dec. 31, while Azure and other cloud services revenue grew 39%, or 38% excluding currency swings. Operating income rose 21% to $38.3 billion, the company said. (Microsoft press release)
Net income was $38.5 billion, or $5.16 per share, under generally accepted accounting principles, Microsoft said. It also reported an adjusted profit of $30.9 billion, or $4.14 per share, excluding the impact of its investments in OpenAI.
Microsoft Cloud revenue was $51.5 billion, up 26%, with the Intelligent Cloud segment rising 29% to $32.9 billion, it said. The Productivity and Business Processes unit, home to Microsoft 365 and LinkedIn, rose 16% to $34.1 billion.
For the current quarter, Microsoft forecast Azure revenue growth of 37% to 38%, and overall sales with a midpoint of $81.2 billion, Reuters reported. Chief Financial Officer Amy Hood also told analysts capital spending would be slightly lower than in the just-finished quarter, while warning that rising memory-chip costs would weigh on cloud margins over time.
The spending is what caught the market’s eye. Capital outlays jumped nearly 66% from a year earlier, with about two-thirds going toward computing chips, Reuters reported.
“One big obvious issue is that revenues are up 17% and the cost of revenues are up 19%,” said Eric Clark, portfolio manager of the LOGO ETF, which holds Microsoft shares, in comments reported by Reuters.
Nadella, meanwhile, tried to show traction in products closer to customers. He said Microsoft now has 15 million annual users for Microsoft 365 Copilot, its $30-a-month AI assistant for business users, Reuters reported.
“We want to be able to allocate capacity while we’re supply constrained,” Nadella said on the conference call, as he argued that a meaningful share of the spending supports Microsoft’s own products.
Microsoft also highlighted contracted demand. It said its commercial remaining performance obligation — a measure of contracted revenue not yet recorded — surged 110% to $625 billion. Reuters reported that about 45% of that obligation was driven by OpenAI.
OpenAI’s shifting structure adds another layer. AP reported Microsoft has a roughly 27% stake in OpenAI, and while it is no longer the startup’s exclusive cloud provider, Microsoft retains commercial rights to OpenAI products through 2032. Zacks Investment Research analyst Bryan Hayes said the post-earnings dip likely reflected “investor scrutiny” of the chip and data-center spending required to power AI. (AP)
But the path from spending to profit is still messy. If GPU and memory costs rise faster than cloud pricing, margins can compress even as Azure grows, and Microsoft has also flagged supply constraints that can limit how fast it can add capacity. Competition from Alphabet’s Google, which has been pushing its Gemini models, keeps the pressure on pricing and customer retention.
“We are only at the beginning phases of AI diffusion,” Nadella said in Microsoft’s earnings statement, using the term for how quickly AI spreads into everyday business workflows. Hood said cloud revenue crossed $50 billion in the quarter and that Microsoft exceeded expectations across revenue, operating income and earnings per share.
