TLDR
- Microsoft reported Q2 earnings of $4.14 per share on $81.3 billion revenue, beating analyst expectations of $3.91 per share and $80.3 billion
- Azure cloud revenue grew 39% but slowed from previous quarter’s 40% growth rate, slightly above Wall Street estimates of 37.8%
- Capital spending hit $37.5 billion, up 66% year-over-year, with most going toward computing chips for AI infrastructure
- Microsoft disclosed 15 million annual users for M365 Copilot, its $30 per month AI assistant for business users
- Stock dropped 6.8% in after-hours trading despite earnings beat, with concerns about rising costs and competition from Google’s Gemini
Microsoft stock tumbled in after-hours trading Wednesday even though the company delivered better-than-expected quarterly results. The tech giant posted adjusted earnings of $4.14 per share on revenue of $81.3 billion for its fiscal second quarter.
📄 Microsoft Q2 FY26 Earnings Report Summary:
— EarningsTime (@Earnings_Time) January 28, 2026
Analysts surveyed by FactSet had expected earnings of $3.91 per share on revenue of $80.3 billion. Despite beating these estimates, shares fell 6.8% after the announcement.
The market reaction appears tied to concerns about cloud growth and massive AI spending. Azure cloud division revenue grew 39% during the October-December quarter. While this beat Wall Street estimates of 37.8%, it represented a slight slowdown from the previous quarter’s 40% growth rate.
CFO Amy Hood provided guidance that raised additional concerns. She said the company expects third-quarter Azure revenue growth to be between 37% and 38% in constant currency. Wall Street had been expecting 37.6%.
Microsoft spent a record $37.5 billion on capital expenditures during the quarter. This represented a 66% jump from last year. About two-thirds of that spending went toward computing chips for AI infrastructure.
The spending exceeded analyst estimates of $34.31 billion according to Visible Alpha. One concern raised by investors is that revenues grew 17% while the cost of revenues grew 19%.
Cloud Competition Heats Up
Google’s Gemini AI model and other competing offerings have started to challenge Microsoft’s early lead in artificial intelligence. The company’s partnership with OpenAI, once seen as its strongest competitive advantage, now faces questions as rivals make progress.
Microsoft revealed for the first time that M365 Copilot has 15 million annual users. The AI assistant costs $30 per month and represents the company’s main AI offering for business users. This figure doesn’t include use of Microsoft’s more limited chat features.
CEO Satya Nadella stated that Microsoft has built an AI business larger than some of its biggest franchises. The company said its commercial remaining performance obligations reached $625 billion, a 110% increase from the prior year.
OpenAI Impact Shows In Results
The company’s “Other” segment swung to income of $10 billion in the quarter from a loss of $2.3 billion a year ago. Microsoft attributed this change to OpenAI’s corporate restructuring. Microsoft owns about 27% of the AI startup.
Roughly 45% of Microsoft’s remaining performance obligation was driven by OpenAI alone. This underscores the company’s reliance on the startup, which has pledged around $1.4 trillion in overall AI expenditure.
OpenAI plans to spend at least $281 billion with Microsoft. The restructuring deal included a commitment from OpenAI to buy $250 billion of Azure services. However, it also freed OpenAI to pursue cloud deals with other companies.
Microsoft said that excluding OpenAI, its cloud backlog grew at 28%. This includes a $30 billion deal with Claude-maker Anthropic.
Hood said capital spending will be slightly lower in the current quarter than in the just-completed period. She noted that over time, rising memory chip costs will start to weigh on cloud computing margins.
Microsoft forecast overall sales for the fiscal third quarter in a range with a midpoint of $81.2 billion. This aligned with analyst estimates of $81.19 billion according to LSEG data.
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