Shares of Microsoft are down 11.7% in Thursday trading after the company reported fiscal second-quarter results that beat Wall Street estimates but failed to satisfy investor expectations around Azure cloud growth and AI infrastructure spending.
Earnings Beat Fails to Impress
Microsoft posted non-GAAP EPS of $4.14 on revenue of $81.27 billion for the quarter ended December 31, 2025, topping consensus estimates of $3.92 and $80.28 billion respectively. Net income surged 60% year over year to $38.5 billion. Despite the quantitative beat, shares dropped 7% in after-hours trading Wednesday and extended losses through Thursday morning.
The selloff centers on Azure cloud growth, which came in at 39% year over year. While strong in absolute terms, the figure appears to have missed informal Wall Street expectations for continued acceleration. Investors also questioned the company’s massive AI infrastructure spending, with capital expenditures hitting $37 billion in the quarter, up 65% year over year.
Capex Concerns Weigh on Sentiment
Stifel cut its price target from $640 to $520 following the results, citing margin compression from AI infrastructure and talent costs. CFO Amy Hood attempted to reassure investors that GPU depreciation risks are mitigated by pre-contracted useful life agreements, but the message failed to offset concerns about return on investment.
Nearly half of Microsoft’s $625 billion backlog is tied to AI model makers, including OpenAI, raising questions about whether Azure growth justifies the unprecedented spending. The company’s Q2 capex of $37 billion marks the highest quarterly infrastructure investment in company history.
Peers Rally While Microsoft Stumbles
The move stands in sharp contrast to other megacap tech earnings this week. Meta jumped 9% after beating Q1 sales forecasts, while IBM surged 7.7% on strong software revenue and AI business growth exceeding $12.5 billion. Tesla edged up 2% despite its first annual revenue decline.
On Reddit’s r/wallstreetbets, retail investors focused more on reports that Microsoft is in talks to invest less than $10 billion in OpenAI as part of a broader $100 billion funding round. The post drew 1,133 upvotes and 369 comments, with sentiment remaining bullish despite the earnings disappointment.
What to Watch
Investors will focus on whether the stock finds support near $430 or extends losses into the close. With 56 of 57 analysts maintaining buy ratings and a consensus price target of $616, the gap between Wall Street’s long-term outlook and near-term trading action has widened sharply.
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