A technology giant has suddenly experienced a sharp decline! In after-hours trading on Wednesday, January 28, Microsoft's stock price plummeted by over 8% at one point. Earlier, the company released its fiscal second-quarter earnings report, revealing that its quarterly expenses surged to a record high while its cloud business growth slowed, sparking investor concerns that returns on its artificial intelligence investments might take longer than anticipated to materialize.
The latest financial report from Microsoft shows that for the second quarter of fiscal year 2026, ended December 31, 2025, the company's revenue reached $81.27 billion, a 17% increase year-over-year. The quarterly net profit was $38.46 billion, or $5.16 per share, up from $24.11 billion (or $3.23 per share) in the same period last year. This adjusted earnings figure excludes the impact of the investment in OpenAI.
In the second quarter, the company's capital expenditure hit $37.5 billion, a 66% increase compared to the same period last year, exceeding analyst expectations of $36.2 billion. After adjusting for currency fluctuations, revenue from the Azure cloud computing division grew 38% year-over-year in the second quarter, a deceleration from the growth rate seen in the previous quarter. Analyst surveys indicated that market expectations for this segment's growth were 39.4% and 38.9%, respectively. Microsoft forecasts that Azure sales will grow between 37% and 38% in the current quarter.
Microsoft recorded other income of $9.97 billion in the second quarter, compared to other expenses of $2.29 billion in the prior-year period. This performance reversal occurred three months after OpenAI announced a restructuring, which included converting its for-profit arm into a public-benefit corporation. As of the end of 2025, Microsoft's commercial remaining performance obligation stood at $625 billion, an increase of approximately 110% year-over-year. This growth was driven by a $250 billion cloud services cooperation agreement signed between OpenAI and Microsoft. Microsoft stated that 45% of its commercial remaining performance obligation is related to OpenAI. The commercial remaining performance obligation is an indicator measuring a company's unrecognized revenue and future amounts to be recognized as revenue.
The slowdown in Microsoft's cloud business growth compared to the previous quarter has ignited investor worries about an extended payback period for AI investments. In after-hours trading, Microsoft's stock price fell by more than 8% at one point. As of the time of writing, the stock was still down over 6%. Microsoft CEO Satya Nadella stated in a release, "The proliferation of AI applications is still in its early stages, but Microsoft has already built an AI business that exceeds the scale of some of our largest business segments." He added, "We continue to advance the frontier across the entire AI technology stack to create new value for customers and partners."
Benefiting from its early investment in OpenAI, the developer of ChatGPT, Microsoft has become one of the biggest beneficiaries of the current artificial intelligence boom. In July of last year, Microsoft's market capitalization briefly surpassed the $4 trillion mark. However, as investors continue to express concerns about the massive investments in the AI industry, its stock price has retreated from its highs. DA Davidson analyst Gil Luria suggested that the slowdown in cloud business growth might be sufficient to disappoint investors who had bet on stronger cloud performance.
Analysts and investors pointed out that the growth of Microsoft's Azure cloud business is still primarily driven by its core non-AI cloud workloads. These services provide businesses with storage, management, and processing for data and applications. Microsoft's capital expenditure on related infrastructure reached $37.5 billion, higher than analyst expectations. Microsoft's head of investor relations, James Ambrose, said on Wednesday that the increase in infrastructure spending reflects the company's continued observation of strong cloud demand, both for AI-related and non-AI workloads.
Stifel analyst Brad Reback noted that investors are highly focused on whether Azure's growth rate can outpace the rate of expenditure increases, thereby justifying Microsoft's current level of investment. Furthermore, some investors are uneasy about the vast sums being invested by Microsoft and other large technology companies, as firms are building data centers at a large scale without yet fully demonstrating whether AI demand will be sustainable or ultimately profitable.