NEW YORK, January 28, 2026, 16:20 EST
- Azure growth slightly surpassed forecasts, yet Microsoft shares dipped in after-hours trading.
- Investors want Big Tech to prove the payoff from their massive AI infrastructure investments.
- Microsoft announced its cloud division surpassed $50 billion in quarterly revenue.
Microsoft (MSFT) just edged past expectations for Azure cloud growth in its fiscal second quarter, but the stock dropped over 7% in after-hours trading following the report. Azure revenue rose 39% in the October-December quarter, beating the Visible Alpha consensus of 38.8%, while total revenue increased 17% to $81.3 billion. 1
As megacap tech braces for a crucial earnings cycle, investors are zeroing in on one key issue: is the AI spending spree driving sustainable revenue growth or just inflating depreciation costs? Microsoft, Alphabet, Meta, and Amazon plan to ramp up AI investments again in 2026, putting their margins and forward guidance under sharper scrutiny than usual. 2
Microsoft touted this quarter as an early sign of progress in its AI strategy. “We are only at the beginning phases of AI diffusion,” said CEO Satya Nadella. CFO Amy Hood highlighted strength in the cloud business: “Microsoft Cloud revenue crossed $50 billion this quarter.” The company posted non-GAAP earnings per share of $4.14 and revealed its commercial remaining performance obligation—sales under contract but not yet recognized as revenue—jumped to $625 billion. 3
The segment breakdown revealed where growth is focused. Productivity and Business Processes revenue jumped to $34.1 billion, up from $29.4 billion a year ago. Intelligent Cloud revenue also surged, rising to $32.9 billion from $25.5 billion. In contrast, More Personal Computing slipped slightly to $14.3 billion from $14.7 billion. 4
Just one quarter ago, Azure’s growth was even stronger. In the fiscal first quarter ending Sept. 30, Microsoft posted a 40% year-over-year rise in revenue from Azure and other cloud services—a recent high investors have been watching ahead of this report. 5
The company highlighted the ongoing trade-off dogging the AI surge. Microsoft reported a slight dip in gross margin percentage, blaming continued AI infrastructure investments and rising AI product use. It put Microsoft Cloud’s gross margin at 67%. On top of that, higher operating expenses linked to compute capacity and AI talent weighed on results, alongside impairment charges in its Gaming segment. However, net gains from its OpenAI stake boosted net income and diluted EPS by $7.6 billion and $1.02, respectively. 6
Positioning ahead of the print was already on edge. Options pricing — essentially bets on how far a stock might swing — indicated a near 5% move in either direction by week’s end, based on Tuesday’s close around $481, according to Investopedia. That comes after shares dropped roughly 11% since Microsoft’s last earnings in October. Morgan Stanley analysts, who maintain an “overweight” rating, said talks with customers and execs suggest Azure growth is tracking at or above expectations as additional data-center capacity ramps up. 7
Ahead of the report, forecasts showed robust growth alongside ongoing pressure on margins. According to Bloomberg consensus numbers cited by Yahoo Finance, earnings per share were projected at $3.92 on $80.3 billion in revenue. Commercial cloud revenue was anticipated to climb roughly 25% to $51.2 billion, but gross margins were expected to dip by about 4.89%. 8
Microsoft released its results under GAAP, the standard U.S. accounting framework, while also sharing non-GAAP figures that exclude specific items. Investors tend to focus on these adjusted numbers to gauge operating momentum, yet the GAAP results still sway sentiment, especially when big investment gains or losses impact profits.
Microsoft plans to hold a conference call at 2:30 p.m. Pacific time to review the quarter. The stock initially responded poorly, shifting attention to guidance—particularly any updates on capital expenditures, the upfront costs tied to data centers and servers essential for scaling AI models. 9
But the flip side is clear. If cloud demand slows or costs climb faster than revenue, the market can turn sour even on a headline beat. With Alphabet and Amazon aggressively expanding in cloud AI, the standard for “good enough” keeps shifting upward.
