It was a results report that contained some mind-blowing numbers: Microsoft said it hit a milestone of $50 billion in quarterly revenue for its cloud business and said its backlog more than doubled to $625 billion thanks to the boost from OpenAI. But shares of the tech giant fell nearly 5% in after-hours trading after a second quarter. publication of results which showed a slowdown in Azure’s revenue growth and capacity constraints that, Microsoft admitted, will extend “at least” until the end of its fiscal year in June.
During winnings call With analysts following the market close on Wednesday, Chief Executive Officer Satya Nadella and Chief Financial Officer Amy Hood were pressed on investor concerns about slowing revenue growth from the Azure platform amid rising capital spending – both signs the company is struggling to keep up with demand for AI. These two numbers combined have raised questions about whether Microsoft can expand its computing capacity as quickly as expected and whether this issue will further limit Azure’s growth. Essentially, investors fear seeing the first signs of a yellow flag.
“One of the biggest issues for investors is that investments are growing faster than expected, and maybe Azure is growing a little slower than expected,” said Keith Weiss, head of U.S. software research at Morgan Stanleyduring the call. “It basically comes down to a concern about the [return on investment]on these investments spent over time.
HAS set of levels: Microsoft spent $34.9 billion on capital expenditures during the first trimester in fiscal 2026 alone, about half of which is dedicated to assets, including GPUs and CPUs, which are the chips it uses in PCs, servers and Azure data centers. In T2investments were approximately $37.5 billionwhich brought the first half total to $72.4 billion, signaling significant infrastructure spending. In the first quarter, Hood told investors the company was seeing growing demand and a rising RPO balance, which meant it would increase its chip spending.
Meanwhile, Azure growth has flattened, falling from 40% in the first quarter to 39% in the second. “We continue to see strong demand across workloads, customer segments and geographies, and demand continues to outstrip available supply,” Hood said on the call.
The latest earnings figures have investors thinking about capacity constraints and return on investment questions.
Hood pushed back on the idea that investors should draw a direct correlation between Azure’s capital expenditures and revenue numbers. “Sometimes I think it’s probably best to think about the Azure guidance that we give as a allocated capacity guide to what we can generate in terms of Azure revenue,” Hood told Weiss in response to his question.
“The first thing we’re doing is addressing the increased usage and sales and accelerating pace of the M365 Copilot, as well as the GitHub Copilot,” she said. Next, Microsoft invests in R&D and product innovation, both of which are long-term investments. “Ultimately, the rest is dedicated to Azure capacity, which continues to grow in terms of demand,” Hood said.
If Microsoft had allocated all new GPUs in the first and second quarters exclusively to Azure, Hood said, Azure’s growth would have been much higher than the 39% reported by Microsoft.
Nadella underscored Hood’s point, emphasizing that investors should evaluate the performance of the entire AI company. He said investors should “obviously” consider Azure, but shouldn’t forget about Microsoft 365 Copilot, Github Copilot, Dragon Copilot and Security Copilot, all of which incorporate AI.
“Acquiring an Azure customer is very important to us, as is acquiring an M365, a GitHub or a Dragon Copilot. [customer]” said Nadella. He said IT spending also functions as an R&D type investment.
“You have to think about computing like R&D, and that’s kind of the second piece,” Nadella said. “And so we use all of that, obviously, to optimize for the long term.”
Still, investors will likely remain concerned that current capacity constraints could prevent the tech giant from converting its record RPO backlog, reported in filings in the form of remaining performance obligations (RPOs), into revenue growth as fast as Wall Street expects. Additionally, investors will be looking next quarter for signs that infrastructure spending is justified by revenue growth.
Despite investor concerns and stocks falling after hours, most of the news from the latest earnings report was positive. Microsoft reported second-quarter revenue of $81.3 billion, up 17% from last year’s $69.6 billion, beating the company’s forecast of $79.5 billion to $80.6 billion. Operating profit rose 21% to $38.3 billion from $31.7 billion, while diluted earnings per share rose 24% to $4.14 from $3.35. Additionally, the cloud business generated quarterly revenue of $50 billion for the first time, reaching $51.5 billion, a 26% year-over-year growth.
RPO increased 110% year over year to $625 billion, driven in part by a $250 billion commitment from OpenAI announced in October. Hood said investors shouldn’t worry about exposure to one of Microsoft’s major partners, pointing out that about $344 billion in RPO came from a diverse set of other customers. The RPO for this set of customers grew 28% year-over-year, which Hood says is higher than most of Microsoft’s peers.
About “55%, or about $350 billion, is related to the breadth of our portfolio, the breadth of our customers, across all solutions, across Azure, across industries and across geographies,” Hood said. “Frankly, I think we have a lot of confidence in that.”
