Microsoft Shares Slide After Q2 Beat

Stock Drops Sharply After Earnings Beat

Microsoft shares tumbled on Thursday, falling about 11.8% to roughly $425 and leading declines on the Dow Jones Industrial Average and the Nasdaq. The move followed fiscal second-quarter results (for the quarter ended Dec. 31, 2025) that topped Wall Street expectations but failed to meet investor hopes for faster growth in key areas such as Azure and artificial intelligence-related services.

The stock’s decline of around 12% is notable given Microsoft’s typically low volatility, with moves greater than 5% described as rare over the past year. The sell-off continued losses that began in after-hours trading following the earnings release, and comes with the stock down about 10.1% since the beginning of the year and trading more than 20% below its 52-week high.

Strong Top-Line Results Across Segments

For the quarter, Microsoft reported revenue of about $81.3 billion, up 17% year over year and roughly 15% in constant currency. Adjusted earnings per share came in at $4.14, an increase of around 24% (21% in constant currency) and ahead of consensus estimates near $3.91–$3.92. These adjusted figures excluded the impact of Microsoft’s investment in OpenAI.

All major business segments met or slightly exceeded expectations. Productivity and Business Processes revenue rose about 16% to roughly $34.1 billion, supported by double-digit growth from Microsoft 365 and LinkedIn. Intelligent Cloud revenue increased around 29% to $51.5 billion, with the Azure cloud platform posting approximately 39% growth, a touch above the company’s guidance of about 37% in constant currency.

The More Personal Computing segment, which includes Windows, Xbox, and Surface, generated about $14.3 billion in revenue, declining around 3% year over year and coming in slightly below forecasts. Some commentary also cited a miss in personal computing relative to other divisions that beat expectations.

Cloud and AI Growth Under Investor Scrutiny

Despite Azure’s 39% year-over-year growth and a modest beat versus company guidance, analysts noted that the result was slower than many on Wall Street had anticipated. Some investors appeared disappointed that Azure’s growth did not accelerate further given strong demand for AI services and earlier optimism around Microsoft’s AI strategy.

Microsoft executives said demand for Microsoft 365 Copilot, GitHub Copilot, and other AI-driven business applications remains strong and is expected to continue driving growth. However, CFO Amy Hood indicated that cloud growth has been constrained by capacity limits, and management emphasized that cloud and AI growth will vary from quarter to quarter as additional infrastructure comes online.

Surging Capex and AI Concentration Risks

A key focus for investors was Microsoft’s capital expenditures, which climbed to about $37–$37.5 billion in the quarter, up roughly 65% year over year from $26.6 billion. The spending reflects efforts to expand data center and GPU capacity to meet AI-related cloud demand, but raised questions about margins and the timing and scale of returns on this investment.

Microsoft indicated that nearly half of its $625 billion backlog is attributable to AI model makers, including OpenAI, concentrating a significant portion of future commitments in a small set of customers. Some analysts flagged this as a concentration risk, particularly in light of concerns about OpenAI’s ability to meet large, long-term financial commitments.

Market and Analyst Reaction

Following the sell-off, Microsoft’s trailing 12‑month price-to-earnings ratio fell to about 30, bringing it closer to levels seen at other large technology companies. While concerns centered on AI infrastructure spending, backlog composition, and the pace of cloud growth, many analysts maintained positive longer-term views on the stock.

Visible Alpha data cited in one report showed 14 of 15 analysts rating the stock a “buy,” with an average price target around $598, implying more than 40% upside from recent levels. At the same time, some firms adjusted targets, with Stifel cutting its price target from $640 to $520, citing margin pressure from AI infrastructure and talent costs after what it called Microsoft’s highest quarterly infrastructure investment on record.