NEW YORK, Jan 29, 2026, 16:03 ET — After-hours
- Microsoft shares dropped steeply, with investors focusing on the expenses tied to its AI development amid cloud expansion.
- Despite beating quarterly estimates, concerns over record capital spending and cloud-margin pressures took center stage.
- Attention now shifts to Friday’s session, where analysts are expected to revise forecasts for Azure and spending strategies.
Microsoft shares dropped roughly 11% on Thursday, falling $52.95 to close near $428.68 in late trading after dipping to a session low of $421.11.
The decline comes after a quarter where capital spending surged to a record $37.5 billion, up almost 66% compared to last year. Executives also warned of growing margin pressure within the cloud segment. “If that is a new long-term trend, that is one of my concerns,” said Eric Clark, portfolio manager of the LOGO ETF. 1
Microsoft reported fiscal second-quarter revenue of $81.3 billion late Wednesday, marking a 17% increase. Azure and other cloud services revenue jumped 39% compared to the same period last year. CEO Satya Nadella described the company’s AI business as “larger than some of our biggest franchises.” 2
Investors turned their attention to Microsoft’s outlook. The company projected Azure growth between 37% and 38% for Q1. CFO Amy Hood flagged AI chip supply limits that could throttle how fast demand is met. “They also introduce concentration risk,” noted Zavier Wong, a market analyst at eToro, highlighting Microsoft’s close link to OpenAI. 3
Microsoft’s drop hit an already jittery market grappling with software valuations and AI disruption. The S&P 500 Software and Services Index tumbled to a nine-month low. Adam Turnquist at LPL Financial said investors seem to be “pricing a worst-case scenario” where AI shakes up the sector. 4
Capital spending, or capex, refers to the funds a company invests in long-term assets like data centers and servers. Meanwhile, remaining performance obligation represents contracted revenue that’s been signed but not yet recorded in the books.
Microsoft’s equation is straightforward: Azure must grow quickly enough to justify its costs. Even a one-point dip in cloud growth can be crucial as investors gauge how rapidly AI tools translate into increased fees and contract renewals.
The OpenAI tie-up works both ways. It drives fresh workloads to Azure, yet funnels a chunk of demand through a single client. That leaves Microsoft vulnerable if spending wanes or rivals grab market share.
There’s a brighter scenario, though. Should chip supply ease and new capacity ramp up swiftly, investors might shrug off short-term margin hits and see this quarter’s spending as a stepping stone rather than a limit.
The downside remains obvious: extended heavy capex alongside cloud growth lingering in the high-30% range would continue to strain the stock. Any slip in major customer commitments would only worsen the situation.
U.S. markets reopen Friday, Jan. 30. Investors will eye early action and new analyst reports to gauge if Microsoft’s recent drop signals a reset or sparks a tougher conversation about AI-driven profits.
