TLDR
- Microsoft beat Q2 forecasts with $4.14 earnings per share and $81.3 billion in revenue but stock fell 6.8% after hours
- Azure cloud platform growth decelerated to 39% from 40% the prior quarter, raising investor concerns about momentum
- The company spent $37.5 billion on AI infrastructure, a 66% increase that exceeded analyst predictions by over $3 billion
- M365 Copilot now has 15 million paying users at $30 monthly, disclosed for the first time by CEO Satya Nadella
- Commercial backlog hit $625 billion with 45% coming from OpenAI alone, highlighting dependency on the AI partner
Microsoft delivered a solid earnings beat Wednesday night but couldn’t avoid a sharp stock decline. Shares dropped 6.8% in extended trading despite the tech company surpassing analyst targets across key metrics.
The company reported $4.14 per share in adjusted earnings with revenue reaching $81.3 billion. Wall Street had projected $3.91 per share and $80.3 billion in revenue. On paper, the results looked strong.
But investors focused on what’s ahead rather than what just happened. Azure cloud platform revenue climbed 39% during the quarter. That topped the 37.8% estimate but marked a slowdown from last quarter’s 40% pace.
CFO Amy Hood’s guidance added to the cautious mood. She projected Azure growth between 37% and 38% for the current quarter. The midpoint sits roughly in line with expectations but signals continued deceleration.
Microsoft poured $37.5 billion into capital spending during the three-month period. That’s a massive 66% jump from a year earlier. Most of the money went toward chips and computing infrastructure for AI applications.
The spending figure came in well above the $34.31 billion analysts anticipated. Investors are watching the return on these huge investments closely. Revenues grew 17% while costs climbed 19%, a ratio that concerned some market watchers.
Copilot Gets Its First User Count
Nadella shared M365 Copilot user numbers for the first time. The AI assistant now has 15 million annual subscribers paying $30 each month. The company positioned this as proof that AI products are gaining real traction with business customers.
The OpenAI relationship continues to drive both opportunities and questions. Microsoft’s “Other” segment posted $10 billion in income compared to a $2.3 billion loss last year. The company credited changes in how it accounts for its 27% OpenAI stake.
Commercial remaining performance obligations doubled to $625 billion year-over-year. But OpenAI alone accounted for 45% of that figure. The startup has committed to spending at least $281 billion with Microsoft over time.
Competition Emerges From Google
Google’s Gemini model has started winning major customers like Apple. This challenges Microsoft’s early lead in the AI space. The company has spent over $200 billion on AI technology since its fiscal 2024 began.
Hood said capital spending will drop slightly in the current quarter. However, she warned that rising memory chip prices will pressure cloud margins going forward. The company forecast third-quarter revenue with a midpoint of $81.2 billion, matching analyst expectations.
Excluding OpenAI, Microsoft’s cloud backlog grew 28%. This includes a $30 billion contract with Anthropic, maker of the Claude AI assistant. Total revenue for the quarter rose 17% to $81.3 billion, ahead of the $80.27 billion consensus.
