New York, January 29, 2026, 10:01 EST — Regular session
- Microsoft shares tumble roughly 10% following earnings release, even though the company beat expectations
- Investors zero in on record AI-driven capital expenditures and optimistic Azure growth forecasts
- Focus turns to more Big Tech earnings, with Apple set to report later Thursday
Microsoft shares dropped roughly 10% in early Thursday trading, deepening their steep slide after earnings. Investors grappled with the company’s record AI spending, which contrasted with just modest shifts in its short-term cloud outlook.
The reaction is significant because Microsoft serves as a key indicator for corporate tech spending and holds substantial weight in U.S. equity indexes. As interest rates are expected to remain elevated for an extended period, markets are growing less tolerant of large spending initiatives that haven’t yet shown clear signs of boosting growth.
The pullback came amid a busy earnings week for megacap tech, shaping the tone for U.S. stocks following the Federal Reserve’s decision to hold policy steady on Wednesday. 1
Microsoft reported late Wednesday that revenue for the quarter ending Dec. 31 climbed 17% to $81.3 billion. Non-GAAP diluted earnings per share came in at $4.14. The company highlighted a 39% jump in “Azure and other cloud services” revenue, with Microsoft Cloud pulling in $51.5 billion. 2
“We are still in the early stages of AI adoption,” Chief Executive Satya Nadella said in the earnings release. Chief Financial Officer Amy Hood noted that Microsoft Cloud revenue “surpassed $50 billion this quarter.” 2
Investors zeroed in on Microsoft’s cost trends despite solid revenue gains. Capital spending soared to $37.5 billion in the quarter, a jump of nearly 66% year-over-year. The company forecast Azure revenue growth between 37% and 38% for the current quarter. But CFO Amy Hood flagged rising memory-chip costs as a potential drag on cloud margins down the line. “One big obvious issue is that revenues are up 17% and the cost of revenues are up 19%,” noted Eric Clark, portfolio manager for the LOGO ETF. 3
Microsoft highlighted a jump in contracted backlog, which tracks future revenue locked in by contracts, with remaining performance obligations hitting $625 billion. Reuters noted that roughly 45% of this was fueled by OpenAI. The company also revealed its M365 Copilot assistant now counts 15 million annual users. 3
Competition is heating up. Reuters reported that Microsoft flagged risks from Alphabet’s new Gemini model and autonomous-agent tools like Anthropic’s Claude Cowork. Investors are zeroing in on Microsoft’s tie-up with OpenAI, scrutinizing if the hefty AI investments will lead to sustained demand. 3
Bulls face the risk of a delayed payoff: rising expenses might squeeze margins if cloud growth stalls again or if pricing pressure ramps up, particularly with competitors stepping up their AI assistants and cloud offerings.
Traders will keep an eye on Thursday’s session to see if Microsoft’s decline drags down the wider tech sector, with more earnings reports coming in—including Apple’s, after the U.S. market closes. 1
