Microsoft (NASDAQ: MSFT) reported stronger-than-expected financial results for its fiscal second quarter, yet its stock tumbled nearly 4% in premarket trading on January 30.
While the company posted higher-than-expected earnings per share (EPS) and revenue, disappointing growth in its Azure cloud unit and concerns over high AI spending fueled investor uncertainty.
As of the market close on January 29, the stock was trading at $442.33, down 1% for the day. Despite the dip, the stock remains up nearly 5% since January 1, outperforming the S&P 500’s 3% gain over the same period.
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Microsoft’s Azure growth falls short of expectations
Microsoft’s Azure cloud computing business, a key driver of its AI expansion, grew by 31% in the latest quarter, slightly below analyst expectations of 31.9%. This marked a decline from 33% growth in the previous quarter.
Adding to investor unease, Microsoft’s guidance for the fiscal third quarter pointed to further deceleration, with projected Azure growth of 31% to 32%, below Wall Street’s 33% estimate.
Concerns over massive AI spending
Microsoft’s capital expenditures soared to $22.6 billion in the fiscal second quarter, significantly above analysts’ estimates of $20.95 billion. Moreover, the company plans to spend $80 billion on AI infrastructure this fiscal year, betting on the long-term profitability of artificial intelligence.
CEO Satya Nadella outlined Microsoft’s capital allocation strategy, emphasizing that AI scaling laws are driving compounding efficiency gains in both training and inference, helping to optimize costs over time.
“We ourselves have been seeing significant efficiency gains in both training and inference for years now. On inference, we have typically seen more than 2x price performance gain for every hardware generation and more than 10x for every model generation due to software optimizations. And as AI becomes more efficient and accessible, we will see exponentially more demand.” – Satya Nadella
Meanwhile, Microsoft has expanded its AI offerings, integrating DeepSeek’s R1 model into Azure AI Foundry and GitHub, with plans to make it available on Copilot+ PCs.
However, investor skepticism remains, with many questioning whether these efficiency improvements will translate into stronger revenue growth and justify Microsoft’s escalating AI investments.
Strong overall earnings overshadowed by cloud concerns
Despite concerns over Azure’s growth, Microsoft delivered a strong financial performance, surpassing Wall Street expectations. The company reported earnings per share of $3.23, while revenue reached $69.63 billion. Net income rose to $24.11 billion, up from $21.87 billion in the same quarter last year.
Microsoft’s Productivity and Business Processes division, which includes Office 365 and LinkedIn, brought in $29.44 billion, exceeding projections, while its More Personal Computing segment, covering Windows, Bing, Surface, and Xbox, generated $14.7 billion, showing steady performance.
As Microsoft moves forward, the company’s ability to sustain Azure’s growth while optimizing AI costs will be critical in determining whether it can regain investor confidence. Until then, concerns over slowing cloud momentum and intensifying competition may continue to weigh on the stock.
Featured image via Shutterstock
