Microsoft (MSFT) reported its second quarter earnings after the bell on Wednesday, beating Wall Street estimates on the top and bottom lines, with cloud revenue topping $50 billion for the first time.
The company’s stock fell 6% before the bell on Thursday on the news.
“We are only at the beginning phases of AI diffusion, and already Microsoft has built an AI business that is larger than some of our biggest franchises,” CEO Satya Nadella said in a statement.
“We are pushing the frontier across our entire AI stack to drive new value for our customers and partners.”
Microsoft is one of the biggest beneficiaries of the AI explosion, thanks to its early investments in ChatGPT developer OpenAI, sending its market capitalization above the $4 trillion mark in July. But it’s come down from those highs as investors continue to raise concerns about the AI industry’s massive spending.
In Q2, earnings per share (EPS) of $5.16 on revenue of $81.27 billion topped the $3.92 and $80.3 billion Wall Street was anticipating.
Microsoft Cloud revenue came in at $51.5 billion just ahead of an expected $51.2 billion. The company reported Cloud revenue of $40.9 billion in the same period last year.
Microsoft’s Productivity and Business Processes, which includes revenue from Microsoft 365 Commercial and Consumer Cloud, hit $34.1 billion. Wall Street was expecting $33.6 billion.
Satya Nadella, CEO of Microsoft, speaks at the Annual Meeting of the World Economic Forum in Davos, Switzerland, Wednesday, Jan. 21, 2026. (AP Photo/Markus Schreiber) · ASSOCIATED PRESS
The company’s Intelligent Cloud business, which includes Azure sales, brought in $32.9 billion, beating estimates of $32.2 billion.
Remaining performance obligations (RPO), or the value of contracts Microsoft has with customers that haven’t been paid out yet, hit $625 billion. Some 45% of that comes from OpenAI commitments. The number has become a key metric to help Wall Street better gauge overall AI demand.
Microsoft continues to face AI capacity constraints, meaning customer demand for AI is outpacing Microsoft’s ability to supply it, putting an artificial cap on the Windows maker’s revenue.
That’s also why the company is pouring billions more into capital expenditures, which hit $37.5 billion in the quarter, up from $22.6 billion in the second quarter of 2025.
The company’s More Personal Computing business, which is comprised of sales of its Surface and Xbox products, as well as Windows software, generated $14.3 billion, in line with expectations.
Microsoft’s stock price is up just 7% over the past 12 months, slightly outpacing cloud rival Amazon (AMZN), which is up a mere 2% in the same period.
Both companies, however, are being blown away by Google’s (GOOG, GOOGL) stock, which is up a stunning 69% over the last 12 months.