Microsoft Chairman and CEO Satya Nadella delivers a speech during the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 20, 2026.
Harun Ozalp | Anadolu | Getty Images
Microsoft Shares fell 6% in extended trading Wednesday after the software maker reported slowing cloud growth.
Here is the company’s performance compared to the LSEG consensus:
Earnings per share: $4.14 adjusted vs. $3.97 expectedIncome: $81.27 billion versus $80.27 billion expectedAs for the forecast, Microsoft reported revenue of $80.65 billion to $81.75 billion for the third quarter. The midpoint of the range was $81.2 billion, matching the LSEG consensus of $81.19 billion. The company’s forecast for quarterly Azure cloud growth was 37-38% at constant currency. The StreetAccount consensus was 37.1%.
The company’s implied operating margin for the third quarter is 45.1%, below StreetAccount’s consensus of 45.5%.
For the fiscal second quarter, which ended Dec. 31, Microsoft’s revenue increased 16.7% year-over-year, according to a report. statement. Net income, at $38.46 billion, or $5.16 per share, was up from $24.11 billion, or $3.23 per share, in the same quarter a year earlier. Adjusted profit excludes the impact of investments in OpenAI. The company’s gross margin was its lowest in three years, at just over 68%.
Revenue from Azure and other cloud services increased 39%, compared to 40% growth in the fiscal first quarter. Analysts polled by StreetAccount and CNBC expected growth of 39.4% and 38.9%, respectively.
The company reported $9.97 billion in other income, compared to $2.29 billion in other expenses in the same quarter last year. This change comes three months after OpenAI announced a restructuring this involved its for-profit arm becoming a public benefit corporation. Microsoft saw a decrease in its proportionate stake in OpenAI, generating a dilution gain.
At the end of the year, the company’s remaining business performance obligation, a measure of unearned revenue and amounts that will later be recognized as revenue, stood at $625 billion, up about 110%. That’s thanks to OpenAI’s $250 billion cloud commitment with Microsoft during the quarter. Microsoft said 45% of the remaining commercial performance obligations are related to OpenAI, with the remainder increasing by 28%.
“The delay is really significant, but the disclosure that OpenAI is 45% of their delay goes back to where can OpenAI meet these financial targets to pay Oracle, Microsoft and many vendors,” Jefferies analyst Brent Thill said on CNBC’s Closing Bell Overtime.
Thill discussed OpenAI’s revenue concentration during a conference call with analysts.
The rest of the remaining business performance obligation is “bigger than most peers, more diverse than most peers, and frankly I think we have a lot of confidence in it,” said Amy Hood, Microsoft’s chief financial officer. She said Microsoft remains OpenAI’s “provider of scale.”
Commercial booking growth, which tracks quarterly activity, jumped to 230%, up from 112% in the fiscal first quarter.
Microsoft’s Intelligent Cloud segment, which includes Azure cloud infrastructure, generated revenue of $32.91 billion, up nearly 29% and above the consensus of $32.40 billion among analysts surveyed by StreetAccount.
The Business Productivity and Processing segment generated revenue of $34.12 billion, up about 16% and above StreetAccount’s consensus of $33.48 billion. The unit contains Office productivity software, Dynamics business management software and LinkedIn.
Microsoft now has 15 million seats for its Microsoft 365 Copilot add-on for business productivity software subscriptions. Investors have been paying attention to the adoption of Microsoft 365 Copilot as a way to increase revenue for each user. Until now, Microsoft hasn’t talked about how many people have access.
Copilot has room to grow. Microsoft now has more than 450 million paid Microsoft 365 commercial seats.
The More Personal Computing segment, including Windows, Xbox, Surface and Bing, generated revenue of $14.25 billion. That was down about 3% and below the StreetAccount consensus of $14.38 billion. Technology industry researcher Gartner said PC shipments increased 9.3% in the quarter as support for the Windows 10 operating system ended in October.
Gaming revenue declined 9.5%. In a post he posted and then deleted in October, former Microsoft Xbox executive Mike Ybarra described the gaming unit’s strategy as follows: “confusing”.
Read more CNBC tech newsLike cloud rivals like Amazon, Microsoft has built data centers full of special chips capable of running generative artificial intelligence models. Microsoft also pays for CoreWeave and Nebius capacity in the form of leases.
Microsoft’s capital expenditures and finance leases during the quarter were $37.5 billion, up 66%. Analysts polled by Visible Alpha expected $34.31 billion.
“In total, we added almost a gigawatt of total capacity this quarter alone,” Microsoft CEO Satya Nadella said on the call.
Demand from the company’s customers continues to outstrip supply, Hood said.
“Therefore, we must balance the need to better meet growing demand for Azure with expanding the use of first-party AI in services such as M365 Copilot and GitHub Copilot, increasing allocations to R&D teams to accelerate product innovation and the continued replacement of end-of-life servers and network equipment,” she said.
During the quarter, Microsoft announced that it increase prices subscriptions to commercial Office productivity software, and Anthropic announced plans to purchase 30 billion dollars in cloud services and subscribe to up to a gigawatt of additional computing capacity from Microsoft.
Over the past three months, Microsoft stock has fallen about 11%, while the S&P 500 has gained 1%, as investors question the risk that generative AI models will hurt the growth prospects of traditional software.
This is developing news. Please check again for updates.
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