Microsoft’s Q2 2026 earnings beat expectations, powered by strong cloud results that pushed Microsoft Cloud revenue above $50 billion for the first time in a quarter. Even so, the company’s heavy spending on AI infrastructure and a slight slowdown in Azure’s growth rate helped trigger a sharp, mixed market reaction in extended trading, according to different reports.
Microsoft reported total revenue of $81.3 billion for the fiscal second quarter, up 17% year over year, and said operating income rose 21% to $38.3 billion. The company posted non-GAAP earnings per share of $4.14, up year over year, and both Investing.com and SiliconANGLE said the result exceeded Wall Street expectations cited in their reports.
Azure and other cloud services revenue grew 39% during the quarter, with SiliconANGLE noting it was slightly slower than the 40% growth rate from three months earlier. SiliconANGLE also reported that the market’s focus was on cloud momentum and AI-related spending, even as Microsoft’s quarterly numbers came in strong overall.
Cloud beat, stock mixed
Microsoft’s cloud performance stood out in the quarter, led by its Intelligent Cloud segment, which generated $32.9 billion in revenue, up 29% year over year. Investing.com reported that Microsoft Cloud revenue surpassed $50 billion in the quarter, framing it as a milestone for the business.
Despite the beat, different outlets described different after-hours stock moves. SiliconANGLE said Microsoft shares dropped more than 5% in extended trading, while Investing.com said the stock rose 0.63% in aftermarket trading to $483.61.
Why AI spending grabbed attention
Microsoft’s capital expenditures rose to $37.5 billion, up 66% year over year, and Investing.com said about two-thirds went to short-lived assets such as GPUs and CPUs. Bloomberg also described the company’s spending as surging to a record high and said the increase contributed to investor concerns that returns on AI investments could take longer than expected.
SiliconANGLE reported that Microsoft’s “capital expenditures and finance leases” totaled $37.5 billion and said those finance leases include agreements to rent cloud computing capacity from third parties such as CoreWeave Inc. On the earnings call, CEO Satya Nadella said Microsoft added “nearly one gigawatt of total capacity” during the quarter, according to SiliconANGLE’s report.
Profitability also came up as Microsoft scales infrastructure. Investing.com reported Microsoft’s cloud gross margin percentage was 67% versus 70% in the same quarter a year earlier, while SiliconANGLE reported gross margin at 68% and described it as the narrowest in three years.
Segment results across Microsoft
Productivity and Business Processes revenue rose 16% to $34.1 billion, according to Investing.com’s report, and SiliconANGLE reported the same segment at $34.12 billion. Investing.com said the segment’s growth was driven by Microsoft 365 Commercial cloud revenue growth of 17%, LinkedIn revenue growth of 11%, and Dynamics 365 revenue growth of 19%.
More Personal Computing revenue declined 3% to $14.3 billion, according to Investing.com, while SiliconANGLE reported $14.25 billion for the segment. Investing.com attributed the decline mainly to gaming, noting Xbox content and services revenue fell 5% and Xbox hardware revenue fell 32%, while Search and news advertising revenue grew 10% excluding traffic acquisition costs.
SiliconANGLE also reported net income of $38.46 billion for the quarter, up from $24.11 billion a year earlier, and said Microsoft’s adjusted earnings excluded the impact of its investments in OpenAI. Investing.com reported that Microsoft returned $12.7 billion to shareholders through dividends and share repurchases during the quarter.
Outlook and key watch points
For the fiscal third quarter, Investing.com reported Microsoft expects revenue between $80.65 billion and $81.75 billion. The same report said Microsoft expects Microsoft Cloud gross margin to be around 65% and projects Azure revenue growth of 37% to 38% in constant currency.
Investors also tracked long-term contracted demand signals. Both Investing.com and SiliconANGLE reported commercial remaining performance obligation (RPO) of $625 billion, up 110% year over year.
SiliconANGLE said a large share of that RPO stems from OpenAI’s commitment to purchase $250 million worth of cloud computing capacity over the coming years. In the same report, Jeffries analyst Brent Thill questioned the concentration risk and said, “The disclosure that OpenAI is 45% of the backlog goes back to the situation where people are asking, can OpenAI achieve these financial goals to pay Oracle, Microsoft and many of the providers?”
Microsoft, for its part, described AI as a broad, early-stage shift. Nadella said, “we are in the beginning phases of AI diffusion and its broad GDP impact,” according to Investing.com’s recap of the earnings call.
