TLDR
- Microsoft reported $4.14 per share earnings and $81.3 billion revenue, exceeding analyst expectations but shares declined 6.8% after hours
- Azure cloud revenue grew 39% but marked a slowdown from the previous quarter’s 40% growth rate, concerning investors
- The company spent $37.5 billion on AI infrastructure, representing a 66% increase and beating analyst estimates by $3 billion
- Microsoft disclosed 15 million M365 Copilot subscribers for the first time, validating its $30 monthly AI assistant product
- Commercial backlog reached $625 billion with OpenAI contributing 45%, raising questions about customer concentration
Microsoft exceeded Wall Street forecasts Wednesday but faced selling pressure in after-hours trading. The tech company posted adjusted earnings of $4.14 per share on revenue of $81.3 billion for its fiscal second quarter.
Analysts surveyed by FactSet expected $3.91 per share and $80.3 billion in revenue. The results showed strength across multiple business segments. Yet shares tumbled 6.8% following the announcement.
The market reaction centered on Azure cloud platform performance. Revenue grew 39% during the October-December period. That figure surpassed the 37.8% analyst consensus but represented a sequential slowdown from 40% last quarter.
Cloud growth matters deeply to Microsoft’s valuation. Investors pay premium multiples based on expectations for sustained expansion. Any deceleration triggers immediate selling pressure from momentum-focused traders.
CFO Amy Hood provided guidance that reinforced concerns. She projected third-quarter Azure growth between 37% and 38% in constant currency. Wall Street had penciled in 37.6%. The midpoint suggests continued moderation in growth rates.
Infrastructure Spending Reaches New Peak
Microsoft invested $37.5 billion in capital expenditures during the quarter. This represented a 66% jump from the year-ago period. Roughly two-thirds funded computing chips and infrastructure supporting AI workloads.
The spending figure came in well above the $34.31 billion analyst estimate. Investors are demanding evidence that massive AI investments will generate strong returns. Revenue grew 17% while costs climbed 19%, a concerning divergence for profitability watchers.
CEO Satya Nadella revealed M365 Copilot user numbers for the first time. The AI assistant now serves 15 million annual subscribers at $30 per month. This disclosure aimed to demonstrate real enterprise demand for AI products.
The company has invested more than $200 billion in AI technology since fiscal 2024 began. Nadella insisted the company remains in the “early innings” of AI adoption. But investor patience is being tested by the spending pace.
OpenAI Partnership Shows Benefits and Risks
The OpenAI relationship produced contrasting outcomes. Microsoft’s “Other” segment posted $10 billion income compared to a $2.3 billion loss last year. Changes in how the company accounts for its 27% OpenAI stake drove the swing.
Commercial remaining performance obligations doubled year-over-year to $625 billion. OpenAI alone accounted for 45% of this figure. The startup has committed to purchasing at least $281 billion in services from Microsoft over time.
Excluding OpenAI, cloud backlog expanded 28%. This includes a $30 billion contract with Anthropic, creator of the Claude AI system. The heavy OpenAI concentration prompted analyst questions about diversification strategy.
Competition is heating up from Google’s Gemini model. Google recently secured Apple as a significant AI customer. This threatens Microsoft’s early lead in the artificial intelligence race.
Hood said capital spending will decrease slightly next quarter. She warned that rising memory chip costs will pressure cloud computing margins going forward. Total revenue for the quarter rose 17% to $81.3 billion, topping the $80.27 billion consensus.
