Microsoft Shares Fall on Cooling Cloud and Higher Spending

Key Moments

Microsoft (NASDAQ:MSFT) delivered second-quarter adjusted EPS of $4.14 on revenue of $81.3 billion, beating analyst forecasts.
Azure revenue grew 39%, just above 38.8% expectations, but slowed compared to the previous quarter.
Capital expenditures jumped nearly 66% year on year to $37.5 billion, exceeding projections of $34.31 billion and weighing on the stock.

Headline Beat Overshadowed by Market Concerns

Microsoft (NASDAQ:MSFT) posted stronger-than-expected second-quarter results, yet its shares dropped sharply in U.S. premarket trading as investors focused on moderating cloud momentum and a sharp increase in capital spending.

The company reported adjusted earnings per share of $4.14, above the analyst consensus of $3.93. Revenue came in at $81.3 billion, ahead of expectations of $80.23 billion and 17% higher than in the same period a year earlier.

Azure Growth Slows Slightly

Microsoft’s core cloud-computing business showed solid but slightly cooling momentum. Revenue from the Azure cloud division rose 39%, marginally above analyst estimates of 38.8%, but the pace was modestly below the growth rate recorded in the prior quarter.

Metric	Reported	Analyst Expectation	Comment
Adjusted EPS	$4.14	$3.93	Beat
Total Revenue	$81.3 billion	$80.23 billion	Beat; up 17% year on year
Azure Revenue Growth	39%	38.8%	Slight beat; slower than prior quarter
Capital Expenditures	$37.5 billion	$34.31 billion	Up nearly 66% year on year; above expectations

Capex Spike Draws Investor Scrutiny

Capital expenditures surged to $37.5 billion in Microsoft’s fiscal second quarter, nearly 66% higher than the same period last year and above projections of $34.31 billion. The heavier spend added to pressure on the stock as markets weighed the cost of the company’s growth and AI investments.

Cloud and Profitability Remain Strong

Despite concerns around Azure’s trajectory and higher capex, Microsoft’s broader cloud operations continued to deliver robust performance. Microsoft Cloud revenue surpassed $50 billion for the quarter, underscoring the scale of the business.

Operating income rose 21% to $38.3 billion compared with the year-ago period, signaling continued profitability even as the company ramps up investment.

AI Investments and Earnings Breakdown

Management highlighted the growing impact of artificial intelligence on the business. “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,” said Satya Nadella, chairman and chief executive officer of Microsoft.

On a GAAP basis, net income increased 60% to $38.5 billion. Non-GAAP net income advanced 23% to $30.9 billion. Microsoft said its non-GAAP figures exclude the effects of its investments in OpenAI.

Analyst Reaction

Some analysts viewed the underlying quarter favorably despite the negative share-price reaction. “While we believe the stock reaction is due to Azure growth & elevated Capex, we view the second quarter as fundamentally strong beneath the surface,” analysts at Truist said in a note to clients.