Microsoft Stock Plummets After Cloud Growth Slows
Microsoft stock plummets as a CapEx surge to $37.5B and slower Azure growth triggered a near-term selloff despite a $625B RPO and ongoing AI investment.
KEY TAKEAWAYS
- Shares fell about 10% following the results release.
- CapEx jumped to $37.5B, a 66% year-over-year increase.
- Azure growth slowed to 39% year-over-year, down from 40% prior quarter.
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Microsoft (MSFT) stock plummeted after the company reported its fiscal 2026 second-quarter results on Jan. 28, 2026. Investors focused on a surge in capital spending and a slowdown in Azure growth, triggering a near‑10% selloff despite ongoing AI investments.
Earnings and Market Reaction
Microsoft reported total revenue of $81.3 billion for the quarter, surpassing the $80.3 billion consensus. Diluted earnings per share came in at $4.14, above the $3.86–$3.93 forecast. Microsoft Cloud revenue rose 26% year over year to $51.5 billion, marking the first quarter above $50 billion. Azure and other cloud services grew 39%, down from 40% in the prior quarter, signaling a slight deceleration.
AI Spending, Capacity Constraints, and Demand
Capital expenditures jumped 66% year over year to $37.5 billion, bringing first-half spending to $72.4 billion. Management said capacity constraints are expected to last at least through the fiscal year ending June 2026, with demand exceeding supply across workloads.
On Jan. 26, Microsoft unveiled the Maia 200 chip, an AI inference application-specific integrated circuit (ASIC) built on TSMC’s 3-nanometer process. It is deployed in Azure U.S. Central to support workloads including OpenAI’s GPT-5.2 and Microsoft 365 Copilot.
Remaining performance obligations (RPO) rose 110% year over year to $625 billion, with $344 billion attributable to non-OpenAI customers, up 28%. This backlog, combined with heavy AI-focused spending, indicates sustained multi-year demand despite the Azure growth slowdown.
Shareholder returns totaled $12.7 billion in dividends and buybacks, a 32% increase year over year. Several analysts maintained buy ratings despite concerns about near-term returns on the infrastructure investments. Satya Nadella, chairman and CEO, 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.”
