REDMOND, Wash., Jan 29, 2026, 07:29 PST
- Microsoft shares dropped roughly 6.5% in after-hours trading despite record capital expenditures and cloud growth that just barely exceeded forecasts.
- Azure revenue jumped 39% this quarter, with Microsoft projecting 37% to 38% growth next quarter.
- CEO Satya Nadella revealed that Microsoft 365 Copilot now has 15 million users annually, highlighting AI’s value beyond just boosting cloud sales.
Microsoft shares dipped in after-hours trading Wednesday following a report of slower cloud growth and a record $37.5 billion in capital expenditures, raising new questions about the timeline for its AI efforts to boost profit margins. (Reuters)
This reaction is crucial since Microsoft serves as a barometer for corporate AI demand and how quickly Big Tech can convert costly chips and data centers into steady income. Investors have pinned their hopes on Microsoft’s Azure cloud and its close ties with OpenAI to validate the hefty spending.
On the earnings call, executives broadened the perspective, urging Wall Street to evaluate AI progress not just by Azure’s growth but also by the sales of AI assistants like Copilot. For the first time, the company shared key usage metrics for Copilot, according to Reuters.
Microsoft reported a 17% jump in revenue, hitting $81.3 billion for the fiscal second quarter ending Dec. 31. Azure and other cloud services saw a 39% surge, or 38% if you strip out currency effects. Operating income climbed 21% to $38.3 billion, the company added. (Microsoft press release)
Microsoft reported net income of $38.5 billion, translating to $5.16 per share according to generally accepted accounting principles. The company also posted an adjusted profit of $30.9 billion, or $4.14 per share, which excludes the effects of its OpenAI investments.
Microsoft Cloud brought in $51.5 billion, marking a 26% increase. The Intelligent Cloud segment jumped 29% to $32.9 billion, the company reported. Meanwhile, the Productivity and Business Processes division, which includes Microsoft 365 and LinkedIn, grew 16% to $34.1 billion.
Microsoft projected Azure revenue growth between 37% and 38% for the current quarter, with total sales expected to hit around $81.2 billion, according to Reuters. CFO Amy Hood told analysts capital expenditures will dip a bit compared to the last quarter, but she also cautioned that climbing memory-chip prices could pressure cloud profit margins down the line.
Spending grabbed the market’s attention. Capital expenditures surged almost 66% compared to last year, Reuters reported, with roughly two-thirds funneled into computing chips.
“One glaring problem is that revenues have risen 17%, but the cost of those revenues jumped 19%,” Eric Clark, portfolio manager of the LOGO ETF—which includes Microsoft shares—told Reuters.
Nadella pushed to highlight progress with products nearer to the user. He revealed that Microsoft 365 Copilot, their $30-a-month AI assistant for business users, now boasts 15 million annual users, Reuters reported.
“We want to allocate capacity while facing supply constraints,” Nadella said during the conference call, emphasizing that a significant portion of the spending goes toward Microsoft’s own products.
Microsoft also pointed to a jump in contracted demand. Its commercial remaining performance obligation — essentially revenue locked in but not yet recognized — soared 110%, hitting $625 billion. Reuters noted that roughly 45% of that figure came from OpenAI.
OpenAI’s evolving setup complicates things further. According to AP, Microsoft owns about 27% of OpenAI and, though it’s no longer the sole cloud provider, it holds commercial rights to OpenAI’s products until 2032. Bryan Hayes, an analyst at Zacks Investment Research, noted that the drop after earnings probably came down to “investor scrutiny” over the hefty chip and data-center investments needed for AI. (AP)
The road from spending to profit remains tangled. Rising GPU and memory costs outpacing cloud prices can squeeze margins, even as Azure expands. Microsoft has also warned that supply bottlenecks could slow capacity growth. On top of that, Alphabet’s Google, promoting its Gemini models, adds heat to pricing and customer loyalty battles.
“We are only at the beginning phases of AI diffusion,” Nadella said in Microsoft’s earnings statement, referring to how fast AI is integrating into daily business operations. Hood reported that cloud revenue topped $50 billion this quarter, with Microsoft beating expectations on revenue, operating income, and earnings per share.
