What is the story about?
Microsoft Inc. reported slower growth in its core cloud business for the second quarter of fiscal 2026 despite spending surging to a record high. Although the growth was slower only by a percentage point, it sent the stock lower by 7% in extended trading.
For the second quarter itself, Microsoft's numbers just about surpassed expectations with revenue of $81.27 billion compared to the $80.27 billion estimate. Its Earnings Per Share (EPS) of $4.14 was also marginally higher than the $3.97 expected.
The company's cloud-computing unit, Azure, saw a 38% growth in sales for the quarter, lower than the 39% growth seen during the same period last year, adjusted for currency fluctuations. "That may have been enough to disappoint investors betting on stronger performance from the cloud unit," DA Davison analyst Gil Luria said.
Growth slowed despite capital expenditure in the quarter increasing by 66% from last year to $37.5 billion, higher than the analyst expectations of $36.2 billion.
For the third quarter, Microsoft sees operating margins at 45.1%, lower than consensus estimates of 45.5%. That has added to the pressure on the stock in afterhours trade.
Microsoft's investments in ChatGPT-parent OpenAI boosted its EPS by $1.02 during the quarter.
The total value of commitments from customers that Microsoft expects to materialize as sales in the future has more than doubled from last year. Most of that comes from the $250 billion deal with OpenAI, with the startup making up for 45% of the total order backlog, which stood at $625 billion at the end of the second quarter.
Microsoft also announced that it will raise prices of the commercial office productivity software subscriptions.
Shares of Microsoft are trading 7% lower in extended trading on Wednesday at $447.66 ahead of the management earnings call.
For the second quarter itself, Microsoft's numbers just about surpassed expectations with revenue of $81.27 billion compared to the $80.27 billion estimate. Its Earnings Per Share (EPS) of $4.14 was also marginally higher than the $3.97 expected.
The company's cloud-computing unit, Azure, saw a 38% growth in sales for the quarter, lower than the 39% growth seen during the same period last year, adjusted for currency fluctuations. "That may have been enough to disappoint investors betting on stronger performance from the cloud unit," DA Davison analyst Gil Luria said.
Growth slowed despite capital expenditure in the quarter increasing by 66% from last year to $37.5 billion, higher than the analyst expectations of $36.2 billion.
For the third quarter, Microsoft sees operating margins at 45.1%, lower than consensus estimates of 45.5%. That has added to the pressure on the stock in afterhours trade.
Microsoft's investments in ChatGPT-parent OpenAI boosted its EPS by $1.02 during the quarter.
The total value of commitments from customers that Microsoft expects to materialize as sales in the future has more than doubled from last year. Most of that comes from the $250 billion deal with OpenAI, with the startup making up for 45% of the total order backlog, which stood at $625 billion at the end of the second quarter.
Microsoft also announced that it will raise prices of the commercial office productivity software subscriptions.
Shares of Microsoft are trading 7% lower in extended trading on Wednesday at $447.66 ahead of the management earnings call.
