Microsoft Earnings: Shares Fall on Cloud Outlook
Microsoft earnings for fiscal Q2 2026 showed $81.3 billion revenue and $51.5 billion cloud; investors weighed cloud growth pace, pressuring shares.
KEY TAKEAWAYS
- Following the filing, fiscal Q2 revenue was $81.3 billion; Microsoft Cloud revenue was $51.5 billion.
- Investors pushed shares lower as cloud growth pace drew scrutiny despite rising AI spending.
- GAAP net income included a $7.6 billion OpenAI gain while non-GAAP EPS was $4.14.
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Microsoft Corp. (MSFT) reported fiscal second-quarter 2026 results on January 28, showing stronger revenue and cloud metrics. Despite this, shares declined as investors focused on increased AI spending and signs of slowing cloud growth in its commercial business.
Quarterly Results and Cloud Growth
Microsoft said revenue for the three months ended December 31, 2025, reached $81.3 billion, up 17% year-over-year, with operating income rising 21% to $38.3 billion. GAAP net income was $38.5 billion, boosted by a $7.6 billion gain from its OpenAI investment. Excluding that gain, non-GAAP net income was $30.9 billion, with diluted earnings per share of $4.14.
Productivity and Business Processes revenue rose to $34.1 billion, driven by 17% growth in Microsoft 365 Commercial and 19% in Dynamics 365. Intelligent Cloud revenue increased 29% to $32.9 billion, while More Personal Computing declined 3%, with Xbox content and services down 5%. The company returned $12.7 billion to shareholders through dividends and share repurchases, a 32% increase from a year earlier.
Microsoft Cloud revenue totaled $51.5 billion, up 26%, with Azure and other cloud services growing 39%. Commercial remaining performance obligations (RPO), a measure of contracted future revenue, doubled to $625 billion, with 45% linked to OpenAI contracts. Capital expenditures rose 66% to $37.5 billion.
CEO Satya Nadella said, "We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises."
The scale of cloud revenue, accelerated Azure growth, and the expanded backlog tied to OpenAI highlight a sizable revenue pipeline and elevated AI-related investments. Investors weighed these factors against the pace of near-term cloud expansion, influencing the stock’s decline.
