Why Microsoft Stock Dropped This Week

Core Viewpoint - Investors are expressing concerns regarding Microsoft's AI-driven growth strategy, leading to a significant drop in its stock price by over 7% following the release of its fiscal 2026 second-quarter earnings [1] Group 1: Azure Performance - Revenue for Microsoft's Azure and other cloud services increased by 39% in the quarter ending December 31, slightly below Wall Street's expectations [2] - CFO Amy Hood indicated that Azure's growth could have exceeded 40% if all available GPUs had been allocated to cloud services instead of being used for first-party applications like Microsoft 365 Copilot and GitHub Copilot [3] Group 2: Strategic Decisions - CEO Satya Nadella emphasized a long-term strategy by allocating supply-constrained chips to areas that enhance customer lifetime value, although this approach has not resonated well with investors [4] Group 3: OpenAI Concerns - Microsoft's remaining performance obligations reached $625 billion by December 31, with 45% linked to OpenAI's expansion initiatives, raising concerns about the sustainability of this investment given OpenAI's projected losses of $14 billion in 2026 [5] - The increasing cash burn of OpenAI has led investors to question whether Microsoft will realize its expected future revenue, especially if OpenAI struggles to meet its capital spending needs [6]