Microsoft Corp. reported a 66% increase in capital expenditures for the second quarter of fiscal 2026, reaching a record $37.5 billion. The rise was primarily driven by investments in artificial intelligence (AI) and cloud infrastructure expansion. However, revenue growth for its Azure cloud unit slowed slightly to 38%, meeting but not exceeding analyst expectations.
Azure’s revenue growth rate declined by one percentage point compared to the previous quarter. The company projects Azure sales to increase between 37% and 38% in the current quarter. Despite these results, Microsoft’s shares dropped approximately 7% in after-hours trading following a closing price of $481.63 in New York.
Morgan Stanley analyst Keith Weiss noted investor concerns regarding the faster-than-expected rise in capital expenditures alongside a modest slowdown in Azure growth, raising questions about the return on investment. Microsoft’s Chief Financial Officer Amy Hood clarified that a significant portion of the new cloud capacity is allocated to internal teams supporting products like Copilot, which, if excluded, would have resulted in higher Azure growth rates.
Microsoft continues to expand its cloud computing business, supported by a strategic partnership with AI startup OpenAI. The company has faced challenges in bringing new data center capacity online quickly enough to satisfy demand. Microsoft is integrating AI technologies, including those developed with OpenAI, into its product offerings, aiming to enhance sales of productivity software and cloud services.
CEO Satya Nadella highlighted that 15 million subscriptions to Microsoft 365 Copilot, the company’s primary AI tool for office users, are currently active, reflecting growing adoption among corporate customers.
For the quarter, Microsoft’s total revenue increased 17% to $81.3 billion, with earnings per share of $5.16. The earnings figure was positively impacted by gains from Microsoft’s investment in OpenAI, contributing $1.02 to per-share earnings. Analysts had anticipated revenue of $80.3 billion and earnings per share of $3.92.
Microsoft’s backlog, representing customer commitments expected to convert into future sales, more than doubled year-over-year to $625 billion, largely due to a new $250 billion agreement with OpenAI. OpenAI accounts for 45% of this backlog.
Microsoft is the first among the major cloud service providers to release quarterly financial results for the year. Alphabet Inc. and Amazon.com Inc. are scheduled to report earnings on February 4 and 5, respectively.
Separately, Meta Platforms Inc. received a favorable market response after announcing higher-than-expected capital expenditures to expand its AI business. In its quarterly earnings report, Meta projected full-year capital spending between $115 billion and $135 billion, surpassing the average analyst estimate of $110.6 billion. Following the announcement, Meta’s shares rose about 7% in after-hours trading.
