Microsoft shares trade near $423.80 as of writing, down roughly 12% on the session, marking the company’s worst trading day in five years and erasing more than $400 billion in market value. The sharp decline followed Microsoft’s fiscal second-quarter earnings release, which exceeded Wall Street expectations on revenue and profit. Still, investors reacted swiftly. What drove the disconnect? Earnings Beat Fails to Calm Markets Microsoft reported earnings per share of $5.16 on revenue of $81.27 billion, topping analyst estimates of $3.92 and $80.3 billion. Revenue rose 17% year over year, while GAAP net income jumped 60%, reflecting strong operating leverage across core businesses. Operating income reached $38.3 billion, up 21%, supported by broad-based demand across enterprise software and cloud services. Source: Microsoft via X Despite the beat, markets appeared to focus less on headline growth and more on forward-looking signals embedded in the report. Cloud Growth Hits a Record but Slows Slightly Microsoft Cloud revenue climbed to a record $51.5 billion, exceeding expectations and rising from $40.9 billion a year earlier. The Intelligent Cloud segment, which includes Azure, generated $32.9 billion, also above forecasts. Azure revenue grew 39% year over year, down slightly from 40% in the prior quarter. Source: Microsoft via X That marginal deceleration drew attention. Some investors questioned whether Azure growth could sustain prior momentum as comparisons grow tougher. Even a small slowdown appeared enough to shift sentiment during a volatile session. Productivity and Personal Computing Show Stability The Productivity and Business Processes segment delivered $34.1 billion in revenue, driven by double-digit growth in Microsoft 365 and LinkedIn. This result exceeded expectations and highlighted continued demand from enterprise and consumer users. Meanwhile, the More Personal Computing segment posted $14.3 billion in revenue, roughly in line with estimates. Windows, Xbox, and Activision Blizzard contributions supported the segment, though the results did little to offset broader cloud-related concerns. AI Spending and Capital Expenditures Come Into Focus Microsoft reported capital expenditures of $37.5 billion for the quarter, up sharply from $22.6 billion a year earlier. The company cited ongoing AI capacity constraints, noting that customer demand continues to exceed available infrastructure. Management confirmed that heavy investment remains necessary to expand data center capacity and support AI workloads. Investors appeared to question the near-term return profile of that spending as costs rise faster than revenue. OpenAI Exposure Raises Concentration Questions Remaining performance obligations reached $625 billion, up 110% year over year. Microsoft disclosed that 45% of that total ties to OpenAI commitments . The figure quickly became a focal point for investors assessing risk concentration within Microsoft’s future cloud revenue base. The disclosure added another layer of uncertainty, particularly as markets reassessed valuations tied to long-duration AI growth. Market Reaction Spills Across Tech The selloff extended beyond Microsoft, pressuring SaaS and large-cap technology stocks across the session. Microsoft now trails some cloud peers over the past 12 months, while competitors linked to newer AI breakthroughs continue to outperform. As trading continues, investors will watch whether Microsoft can stabilize after this historic decline. Will upcoming guidance ease concerns around cloud growth and AI economics? The next quarter may prove decisive.
