Microsoft capital spending jumps, cloud revenue fails to impress, shares drop after hours

Core Viewpoint - Microsoft reported record spending on artificial intelligence in the last quarter, leading to slower cloud-computing growth, which has raised concerns among investors expecting significant returns from this investment and its partnership with OpenAI [1][2]. Financial Performance - Microsoft experienced a 6.5% decline in share price during after-market trading following the release of its fiscal second-quarter financial results [1]. - The Azure cloud division's revenue grew by 39% in the October-December period, slightly exceeding the consensus estimate of 38.8% [5]. - Overall revenue for the company increased by 17%, while the cost of revenues rose by 19%, raising concerns about potential long-term trends [4]. Strategic Partnerships and Competitive Landscape - The partnership with OpenAI, which plans to invest at least $281 billion with Microsoft, was initially viewed as a competitive advantage but is now seen as a potential drawback due to competition from Google's Gemini, which is attracting major clients like Apple [2][6]. - Microsoft holds a 27% stake in OpenAI, which has positively impacted its earnings due to changes in accounting for this stake [6]. Future Outlook - For the current fiscal third quarter, Microsoft forecasts Azure revenue growth of 37% to 38%, slightly above analyst estimates of 36.41% [8]. - The company anticipates overall sales to be in a range with a midpoint of $81.2 billion, aligning with analyst expectations of $81.19 billion [8].