Microsoft shrugs off AI bubble fears with another clean beat - but Azure growth eases
Microsoft's fiscal Q2 printed above the line again. Revenue hit $81.27bn versus $80.32bn expected, with EPS at $4.14 vs $3.92. The stock slipped 4% after hours as Azure growth eased a touch, but the AI flywheel still looks intact.
"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," said CEO Satya Nadella. CFO Amy Hood added, "Microsoft Cloud revenue crossed $50bn this quarter, reflecting the strong demand for our portfolio of services."
The headline numbers
- Revenue: $81.27bn (beat; consensus $80.32bn)
- EPS: $4.14 (beat; consensus $3.92)
- Azure: +39% year over year (vs +40% in fiscal Q1)
- Microsoft Cloud: >$50bn this quarter
Market context
Shares fell 4% in extended trading on slower cloud growth. The stock is down 11% from recent highs as investors wrestle with AI spend versus near-term returns, even after the company briefly touched a $4tn market cap six months ago.
Microsoft has topped Wall Street expectations every quarter for the past two years. Three months ago it beat revenue by 2.9%, with sales up 18.4% year on year. Execution has been consistent; the debate now is pacing and payback on AI.
The AI capex cycle is still accelerating
The four largest AI spenders - Microsoft, Alphabet, Amazon, and Meta - are set to deploy about $505bn on AI infrastructure this year, up from roughly $366bn in 2025. That scale of investment keeps capacity tight and cycles lumpy, but it also locks in future compute advantages.
Microsoft previously said Azure orders "significantly" exceeded capacity. This quarter, Azure growth ticked to 39% from 40%. Not a crack - more like a reminder that growth won't move in a straight line as supply expands and customers optimize spend.
Competition and product traction
Microsoft 365 Copilot faces growing pressure, including Anthropic's Claude Cowork, a desktop AI tool aimed at broader accessibility. Anthropic also has an exchange arrangement for compute capacity, underscoring how interlinked vendors and providers have become.
Even so, Wedbush's Dan Ives still pegs Microsoft as the front-runner in enterprise-scale AI, with software distribution and cloud attach as key advantages. Recent US productivity data showed gains without longer work hours, hinting that AI is already contributing to output growth. See the latest release from the Bureau of Labor Statistics for context: BLS productivity report.
What finance teams should watch next
- Azure growth trajectory: Is 39% a brief dip or the start of a glide path lower? Watch sequential points and commentary on AI-driven workloads.
- AI monetization: Copilot seat adds, adoption in large accounts, and any color on ARPU or usage-based upsell.
- Gross margin mix: AI training and inference can pressure margins near term; look for efficiency gains and unit cost trends.
- Capex and cash flow: Track AI infrastructure outlays vs. operating leverage. The timing of returns matters more than the headline spend.
- Backlog and capacity: Any updates on orders outpacing supply, and the pace of bringing new data centers online.
- Competitive moves: Pricing, bundles, and go-to-market shifts from Amazon and Google as they chase enterprise AI workloads.
Bottom line for investors
This was another clear beat with a modest deceleration in Azure. The core story - AI demand pulling through cloud, software, and services - remains intact. The near-term question is margin cadence and capex intensity; the longer-term question is how fast AI features translate into durable, high-margin revenue at scale.
If you're building an AI upskilling plan for finance teams to capitalize on this shift, you can explore practical options here: AI tools for finance.
Further reading
- Microsoft Investor Relations: earnings materials and transcripts - Investor homepage
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