Microsoft Chairman and CEO Satya Nadella speaks at the World Economic Forum (WEF) Annual Meeting in Davos, Switzerland on January 20, 2026.
Harun Ozalp | Anadolu | Getty Images
microsoft Shares fell 7% in after-hours trading Wednesday after the software maker announced slowing cloud growth.
Here is the company’s performance compared to the LSEG consensus:
Earnings per share: $4.14 adjusted vs. $3.97 expected Revenue: $81.27 billion vs. $80.27 billion expected
Regarding guidance, Microsoft estimated third-quarter revenue between $80.65 billion and $81.75 billion. The median range was $81.2 billion, meeting the LSEG consensus of $81.19 billion. The company’s quarterly Azure cloud growth forecast was 37% to 38% excluding currency. StreetAccount consensus was 37.1%.
The company’s implied fiscal third-quarter operating margin was 45.1%, below the StreetAccount consensus of 45.5%. Operating costs include investments in artificial intelligence computing power and human resources.
Microsoft’s revenue for the fiscal second quarter ended Dec. 31 increased 16.7% from the same period last year, according to the statement. Net income was $38.46 billion, or $5.16 per share, up from $24.11 billion, or $3.23 per share, in the year-ago period. Adjusted earnings do not include the impact of our investment in OpenAI. The company’s gross profit margin was the narrowest in three years, at just over 68%.
Revenue from Azure and other cloud services increased 39% compared to a 40% increase in the fiscal first quarter. Analysts surveyed by Street Account and CNBC had expected growth of 39.4% and 38.9%, respectively.
The company reported other revenue of $9.97 billion, compared with $2.29 billion in other expenses in the year-ago period. The move comes three months after OpenAI announced a reorganization that would transform its for-profit arm into a public benefit corporation. Microsoft experienced a reduction in its proportionate ownership of OpenAI, resulting in a dilutive gain.
At year-end, the company’s remaining commercial performance obligations, a measure of unearned revenue and amounts later recognized as revenue, increased approximately 110% to $625 billion. This is thanks to the $250 billion cloud commitment OpenAI made with Microsoft during the quarter. Microsoft said 45% of its remaining commercial performance obligations are related to OpenAI, with the remainder increasing by 28%.
“The backlog is very good, but the disclosure that OpenAI is at 45% of the backlog goes back to whether OpenAI will be able to meet the financial targets that it pays to Oracle, Microsoft and a number of providers,” Jefferies analyst Brent Till said on CNBC’s Closing Bell Overtime.
This brought up OpenAI’s revenue concentration during a conference call with analysts.
The remaining commercial performance obligations are “larger than most of our peers, more diverse than most of our peers, and frankly, I think we have very high confidence in that,” said Amy Hood, Microsoft’s chief financial officer. He said Microsoft remains a “scale provider” for OpenAI.
Commercial booking growth, which tracks quarterly activity, jumped to 230% from 112% in the first quarter.
Revenue for Microsoft’s Intelligent Cloud division, which includes Azure cloud infrastructure, was $32.91 billion, up nearly 29% and beating the $32.4 billion consensus of analysts surveyed by StreetAccount.
Productivity and Business Processing segment revenue was $34.12 billion, up about 16% and beating the StreetAccount consensus of $33.48 billion. This unit includes Office productivity software, Dynamics business management software, and LinkedIn.
Microsoft currently has 15 million seats in its Microsoft 365 Copilot add-on for commercial productivity software subscriptions. Investors are looking to adopt Microsoft 365 Copilot as a way to increase revenue from each user. Up until this point, Microsoft had not said how many people would have access.
Co-pilots have room to grow. Microsoft currently has over 450 million paid commercial Microsoft 365 seats.
The More Personal Computing segment, which features Windows, Xbox, Surface and Bing, contributed $14.25 billion in revenue. This was down about 3% and below the StreetAccount consensus of $14.38 billion. Technology industry researcher Gartner said PC shipments rose 9.3% in the quarter as support for the Windows 10 operating system ends in October.
Gaming revenue decreased by 9.5%. Microsoft announced that it took an unspecified impairment charge in this segment during the quarter. Former Microsoft Xbox executive Mike Ybarra called the gaming division’s strategy “confused” in an X post he posted in October and later deleted.
Like cloud rivals like Amazon, Microsoft is building data centers equipped with specialized chips that can run generative AI models. Microsoft also pays for capacity from CoreWeave and Nebius in the form of leases.
Microsoft’s capital spending and finance leases increased 66% to $37.5 billion in the quarter. Analyst estimates compiled by Visible Alpha were for $34.31 billion.
“In total, we added nearly 1 gigawatt of total capacity in this quarter alone,” Microsoft CEO Satya Nadella said on a conference call.
The company’s customer demand continues to outstrip supply, Hood said.
“Therefore, we must balance the need to better match future supply to growing Azure demand with the need to expand our use of first-party AI across services such as M365 Copilot and GitHub Copilot, accelerate product innovation, and increase allocations to our research and development teams to facilitate the continued replacement of end-of-life servers and networking equipment,” she said.
During the quarter, Microsoft announced that it would increase subscription prices for its commercial Office productivity software, and Anthropic announced plans to acquire cloud services for $30 billion and contract up to 1 gigawatt of additional computing capacity from Microsoft.
Over the past three months, Microsoft stock is down about 11%, while the S&P 500 index is up 1%. Investors are pondering the risk that generative AI models could undermine the growth prospects of traditional software.
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