Investor interest in Microsoft stock may have waned in recent months, but the company reported strong results on Wednesday, proving once again that the AI boom is gaining momentum.
Microsoft reported fiscal second-quarter earnings that are likely to continue Wall Street’s party despite slowing growth in its main cloud computing business.
Microsoft reported revenue of $81.27 billion, compared to expectations of $80.32 billion, an improvement from the 12.3% increase recorded in the year-ago period. Earnings per share came to $4.14, compared to expectations of $3.92.
“We are in the early stages of AI adoption, but Microsoft has already built an AI business bigger than some of our biggest franchises,” said Satya Nadella, CEO of Microsoft. “We are pushing the frontiers of the entire AI stack to bring new value to our customers and partners.”
Microsoft shares fell 4% in after-hours trading Wednesday after the software maker indicated slowing cloud growth.
Microsoft has been one of the main beneficiaries of the AI boom, but investor confidence in it has waned recently. Six months ago, the company reached its vaunted $4 trillion market cap. Three months ago, it beat analysts’ revenue estimates by 2.9%, and reported sales rose 18.4% year-over-year.
The big four AI spenders – Microsoft, Alphabet, Amazon, and Meta – are expected to spend $505 billion on AI infrastructure this year alone, up from about $366 billion in 2025.
But the company’s stock price has since fallen 11% as investors grow increasingly concerned about the lack of return on billions of dollars being poured into AI. Despite these concerns, Microsoft has outperformed Wall Street expectations in every quarter over the past two years.
In its last financial report, Microsoft said that orders for Azure, its AI-enabled cloud computing business, had “significantly” exceeded its production capacity. The division’s sales were expected to increase 38% year-on-year.
Microsoft announced Wednesday that Azure revenue increased 39% compared to 40% growth in the first quarter.
“Microsoft Cloud revenue exceeded $50 billion in the quarter, reflecting strong demand for our portfolio of services,” said Amy Hood, Microsoft executive vice president and chief financial officer. “Sales, operating income, and earnings per share all exceeded expectations.”
Asked about the return on investment from Azure, Hood said it’s better to think of it as a “guide to the allocated capacity of what Azure can deliver in terms of revenue.”
As Microsoft spends huge amounts of capital on computing power, “we’re really making long-term decisions,” he said, pointing to increased sales and usage across the company’s AI products. “And we make sure to invest in the long-term nature of research and development and product innovation.”
But Microsoft’s 365 Copilot AI division faces increasing competition from companies such as Anthropic’s Claude Cowork, a desktop AI tool that acts as a more accessible version of Claude Code.
Wedbush’s Dan Ives said this week that he sees Microsoft as “the clear frontrunner on the enterprise hyperscale AI front, even as competition from Amazon and Google intensifies.”
The latest U.S. productivity report shows significant gains without an increase in working hours, suggesting that this improvement may be due to AI.
