Why Microsoft Stock Plunged on Thursday

Core Viewpoint - Microsoft shares experienced a significant decline of up to 12.6% following its quarterly earnings report, despite delivering solid financial results that exceeded analyst expectations [1][3]. Financial Performance - For fiscal Q2 2026, Microsoft reported revenue of $81.3 billion, marking a 17% year-over-year increase and a 15% increase in constant currency [2]. - Adjusted earnings per share (EPS) reached $4.14, reflecting a 24% increase or 21% in constant currency [2]. - Analysts had projected revenue of $80.3 billion and EPS of $3.92, indicating that Microsoft surpassed these expectations [3]. Business Segment Performance - The productivity and business processes segment generated $34.1 billion in revenue, growing by 16% [4]. - The personal computing segment reported revenue of $14.3 billion, which was a decline of 3% [4]. - Intelligent cloud revenue increased by 29% to $51.5 billion, with Azure Cloud growing by 39% [4]. Capital Expenditures and Future Outlook - Microsoft’s capital expenditures (capex) rose to $37.5 billion in Q2, up from $26.6 billion in the same quarter last year, as the company works to meet AI demand [5]. - Management is balancing capex spending against AI demand while expanding data center infrastructure [5]. - The trailing 12-month price-to-earnings (P/E) ratio for Microsoft has decreased to 30, aligning it with other tech giants [6]. - Management indicated that cloud and AI growth will fluctuate quarterly as additional capacity becomes available, emphasizing a long-term growth strategy [6].