Microsoft Corporation (MSFT)’s Capital Expenditures Soar, Cloud Revenue Falls Short of Expectations, and Shares Plummet After Hours

Core Insights - Microsoft Corporation (NASDAQ:MSFT) has experienced significant capital expenditures, particularly in artificial intelligence, which has led to a decline in share prices due to slower-than-expected cloud revenue growth [2][3]. Financial Performance - In the fiscal second quarter, total revenue increased by 17% to $81.3 billion, while costs rose by 19%, leading to concerns about profitability [2]. - Azure sales grew by 39%, slightly above forecasts, but investor sentiment was negatively impacted by the overall financial performance [2]. - For the third quarter, Microsoft projects Azure growth of 37% to 38% and total revenue close to $81.2 billion [3]. Capital Expenditures - Capital spending reached $37.5 billion, marking a nearly 66% year-on-year increase, with a significant portion allocated to computing chips [2]. - The cloud backlog has doubled to $625 billion, with OpenAI contributing nearly 45% of this total [3]. Market Reaction - Following the announcement of increased spending and slower cloud growth, Microsoft shares fell by 6.5% in after-hours trading [2]. - Year-to-date, the stock is down by 8.34% as of January 29, 2026 [4]. Competitive Landscape - Investor concerns have been heightened due to competition from Google's Gemini and other AI rivals [3]. - Executives have warned that rising memory chip costs could further pressure profitability [3].