New York, January 28, 2026, 18:09 EST
- Microsoft reported fiscal Q2 revenue of $81.3 billion, marking a 17% increase. Azure and other cloud services saw a 39% jump in revenue.
- Capital spending hit a record $37.5 billion this quarter, sparking renewed doubts over the returns on AI investments
- Cloud’s contracted backlog surged to $625 billion, nearly twice as much, with roughly 45% linked to OpenAI
Microsoft shares dipped in after-hours trading Wednesday following the company’s report of record quarterly capital expenditures and a modest beat in Azure cloud growth, raising fresh questions about the pace of returns from its AI investments.
The pullback is significant because investors now view AI as a utility rollout: heavy upfront spending followed by a scramble over who recoups first. Microsoft is pouring money in, betting demand will climb, but the market wants evidence.
This also shines a bright light on Microsoft across the entire sector. Alphabet and Amazon are funneling huge sums into data centres and chips as well, turning cloud growth into the key metric investors track closely.
Microsoft reported a 17% jump in revenue, hitting $81.3 billion for the fiscal second quarter ended December 31. Non-GAAP earnings per share came in at $4.14. CEO Satya Nadella said, “We are only at the beginning phases of AI diffusion.” CFO Amy Hood highlighted that “Microsoft Cloud revenue crossed $50 billion this quarter.” 1
Revenue from Azure and other cloud services rose 39% this quarter, just edging past the 38.8% consensus estimate tracked by Visible Alpha. The margin was slim, offering little cause for cheer.
Microsoft’s capital expenditure hit $37.5 billion, marking a jump of nearly 66% from last year. A big chunk of that went into beefing up AI capabilities. Jonathan Neilson, the company’s VP of investor relations, said around two-thirds of the spend was on “short lived assets” like CPUs and GPUs — the critical data-centre chips powering AI training and operations. 2
Total sales edged just above Wall Street’s forecasts. Analysts were looking for $80.27 billion in revenue, according to LSEG estimates referenced in the reports.
Microsoft’s commercial remaining performance obligation, which tracks contracted work pending revenue recognition, jumped 110% to $625 billion. This figure surpassed the $523 billion reported by cloud competitor Oracle in December.
The backlog included a notable caveat. About 45% stemmed from OpenAI alone, the company noted. OpenAI has announced around $1.4 trillion in AI spending plans, though details on funding remain sparse. Setting OpenAI aside, Microsoft reported a 28% rise in its cloud backlog, which factors in a $30 billion commitment from Anthropic.
“Stock sentiment is closely tied to OpenAI’s performance,” said Ryuta Makino, a research analyst at Gabelli Funds, highlighting the battle between ChatGPT and Google’s Gemini. 3
Microsoft’s profit was boosted by its stake in OpenAI. The company reported that gains from OpenAI added roughly $7.6 billion to net income, driving GAAP earnings per share up to $5.16. At the same time, non-GAAP net income reached $30.9 billion. Microsoft also returned $12.7 billion to shareholders via dividends and buybacks.
Risks remain. Microsoft’s hefty AI investments could weigh on returns if revenue growth stalls. Competition is heating up, with new models and “agent” tools—AI systems built for multi-step tasks—making headway. OpenAI’s restructuring involves a pledge to spend $250 billion on Azure services, yet it also grants ChatGPT’s maker more leeway to strike cloud deals beyond Microsoft, potentially weakening its hold on its top AI client.
