On Wednesday after the U.S. market closed, Microsoft (MSFT.US) released its fiscal second-quarter 2026 earnings. Although both revenue and profit surpassed Wall Street expectations, and its overall cloud business revenue surpassed the $50 billion mark for the first time, a slowdown in Azure cloud service revenue growth and record capital expenditures sparked investor concerns about the return cycle for artificial intelligence (AI) investments, causing its stock to fall sharply in after-hours trading.

Core financial metrics showed robust performance. For the quarter ended December 31, Microsoft's revenue reached $81.27 billion, a year-over-year increase of approximately 17%, exceeding the market consensus of $80.3 billion. Net profit was $38.46 billion, or earnings per share (EPS) of $5.16, far surpassing the market expectation of $3.92. Adjusted EPS was $4.14, also beating estimates. Notably, the significant jump in net profit was partly attributable to gains from a change in the accounting treatment of its investment in OpenAI, which added $1.02 to EPS.

Cloud business revenue hit a new high, but its growth rate slightly decelerated. This quarter, revenue for Microsoft's "Intelligent Cloud" segment, which includes Azure, was $32.91 billion, up nearly 29% year-over-year, slightly above expectations. However, the growth rate of Azure and other cloud services revenue, which the market was more focused on, became the center of attention. According to the company's disclosure, Azure and other cloud services revenue grew 38% year-over-year on a constant currency basis, just meeting analyst forecasts but slowing by one percentage point compared to the previous quarter. Gil Luria, an analyst at DA Davidson, commented that for investors betting on a more robust performance from the cloud business, this slowdown might be enough to disappoint. Although Microsoft's overall cloud business revenue exceeded $50 billion for the first time, reaching $51.5 billion, the "slight decline" in Azure's growth was interpreted by the market as a signal that the AI-driven cloud growth story might face volatility.

A surge in capital expenditures further heightened market pressure. This quarter, Microsoft's capital expenditure soared to $37.5 billion, a massive 66% year-over-year increase, exceeding analyst expectations of $36.2 billion. Approximately two-thirds of this spending was allocated to computing chips to build data centers for meeting AI demand. CEO Satya Nadella stated on the earnings call that the company added nearly one gigawatt of computing capacity in the quarter alone. Despite the substantial investment, company executives have repeatedly mentioned that strong demand for AI services has led to tight capacity supply, which has somewhat constrained faster revenue growth.

As the world's largest software company, Microsoft's cloud computing business had previously experienced rapid growth, partly benefiting from its landmark partnership with leading AI startup OpenAI. However, despite massive investments in data centers, Microsoft has struggled to rapidly scale sufficient computing capacity to meet demand. Another notable figure in the earnings report was the "remaining performance obligation" (RPO), which represents future revenue from signed contracts yet to be recognized. This metric reached a record $625 billion at the end of the quarter, more than doubling year-over-year and surpassing the $523 billion reported by cloud rival Oracle (ORCL.US) last December. However, Microsoft disclosed that a significant 45% of this amount comes from its agreement with OpenAI, highlighting its deep reliance on this AI startup. This quarter, Microsoft entered into a massive $250 billion cloud services commitment agreement with OpenAI. While this locks in long-term revenue, it also raises investor concerns about the independence and potential risks of Microsoft's core cloud business growth. Brent Thill, an analyst at Jefferies, commented, "The backlog number is good, but the disclosure that OpenAI is 45% of it brings us back to that question: Can OpenAI meet its financial goals to pay vendors like Microsoft?"

In other business segments, revenue from the Productivity and Business Processes unit (including Office, Dynamics, LinkedIn) was $34.12 billion, up 16% year-over-year, exceeding expectations. Notably, the company disclosed for the first time that its AI assistant, Microsoft 365 Copilot, has 15 million commercial user seats, showing initial adoption momentum. Revenue from the More Personal Computing segment (including Windows, Xbox, Surface, Bing) was $14.25 billion, down slightly by about 3% year-over-year, slightly below expectations, with gaming revenue declining by 9.5%.

Industry competition is intensifying, putting pressure on the stock price. Microsoft is the first of the three major cloud service providers to report quarterly results this year. Its performance is seen as a key indicator of the input-output efficiency of the AI "arms race" among tech giants. Currently, Microsoft, Amazon (AMZN.US), Google (GOOGL.US), and Meta (META.US) are expected to collectively spend over $500 billion on AI-related capital expenditures this year. In contrast to Microsoft's after-hours decline, Meta's stock surged previously after announcing increased AI spending. This反差 reflects the market's differing judgments on the current return expectations for the AI strategies of different companies. As part of its quarterly report on Wednesday, Meta, the parent company of Facebook, stated that its full-year capital expenditure would be between $115 billion and $135 billion, higher than the analyst average estimate of $110.6 billion. Its stock rose over 10% in after-hours trading at one point. Analysis points out that the strong performance of Google's latest Gemini model and the emergence of competitors like Anthropic are bringing competitive pressure to Microsoft's AI business and traditional software. Ryuta Makino, a research analyst at Gabelli Funds, stated, "Microsoft's stock sentiment is heavily tied to OpenAI's performance, and from Microsoft's perspective, that's somewhat difficult to control right now—at least with the current ChatGPT model competing against Gemini."

Microsoft's stock closed at $481.63 on Wednesday. Following the earnings release, the stock fell over 7% in after-hours trading at one point. Over the past three months, Microsoft's stock has declined approximately 11%, significantly underperforming the S&P 500 index, which gained 1% over the same period. This indicates that investors are becoming more rational after the AI frenzy, more carefully assessing the long-term return prospects of massive investments.