Microsoft demand backlog doubles to $625 billion thanks to OpenAI, but hefty spending and slower revenue growth spook investors

Core Insights - Microsoft achieved a significant milestone by reporting over $50 billion in quarterly revenue for its cloud business, with a demand backlog exceeding $625 billion, largely driven by OpenAI [1] - Despite these impressive figures, Microsoft's stock fell nearly 5% in after-hours trading due to a slowdown in Azure revenue growth and acknowledged capacity constraints expected to last until at least the end of its fiscal year in June [1] Financial Performance - In the first quarter of fiscal 2026, Microsoft allocated $34.9 billion to capital expenditures, with approximately half directed towards GPUs and CPUs for PCs, servers, and Azure data centers [3] - Capital expenditures in Q2 reached about $37.5 billion, bringing the total for the first half to $72.4 billion, indicating substantial infrastructure investment [3] Azure Growth and Demand - Azure's growth rate decreased from 40% in Q1 to 39% in Q2, raising concerns about capacity constraints and return on investment [4] - Despite the slowdown, Microsoft continues to experience strong demand across various workloads, customer segments, and geographic regions, with demand outpacing available supply [4] Investor Concerns - Investors are increasingly worried about the relationship between rising capital expenditures and Azure's revenue growth, questioning whether Microsoft can expand its computing capacity as planned [2][3] - The head of U.S. software research at Morgan Stanley highlighted concerns regarding the return on investment related to the accelerated capital expenditures [3] Management's Perspective - Microsoft's CFO, Amy Hood, suggested that investors should not directly correlate capital expenditures with Azure's revenue figures, proposing that Azure guidance should be viewed as an allocated capacity guide for revenue delivery [5]