Microsoft reported fiscal second‑quarter 2026 revenue of $81.3 billion, up 17% from $68.0 billion a year earlier, and non‑GAAP diluted earnings per share of $4.14, beating consensus estimates of $3.88–$3.97 by $0.17–$0.26. The beat was driven by a 39% year‑over‑year increase in Azure revenue, strong demand for AI‑enabled services, and disciplined cost management that kept operating margins near 45%.
Azure revenue rose to $50.1 billion, a 39% jump that reflects continued uptake of Microsoft’s AI‑powered cloud platform. The company’s commercial remaining performance obligation (RPO) climbed 110% to $625 billion, with 45% attributable to its partnership with OpenAI. Capital expenditures for the quarter reached $37.5 billion, a 66% year‑over‑year rise largely funded by investments in GPUs, CPUs, and data‑center expansion to support AI workloads. The high capex is intended to secure capacity for future growth, but it also exerts short‑term margin pressure.
Segment performance showed that Productivity and Business Processes revenue grew 16% to $34.1 billion, driven by increased adoption of Microsoft 365 and Dynamics 365. More Personal Computing revenue fell 3% to $12.5 billion, reflecting a slowdown in PC sales and a shift toward cloud‑based productivity. The mixed segment results contributed to a slight decline in gross margin from 68% to 67% year‑over‑year, as higher AI product usage and capex costs offset pricing gains.
Management guided fiscal 2026 revenue to $80.65 billion–$81.75 billion for the next quarter and operating margin to approximately 45.1%, slightly below the 45.5% consensus. The guidance signals cautious optimism: revenue growth is expected to remain strong but at a modest pace, while operating margin is projected to stay near 45% despite the elevated capex. The company also reiterated its full‑year outlook, maintaining confidence in its AI‑driven growth trajectory.
CEO Satya Nadella said, “We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises.” CFO Amy Hood added, “Microsoft Cloud revenue crossed $50 billion this quarter, reflecting the strong demand for our portfolio of services, and we exceeded expectations across revenue, operating income, and earnings per share.”
Investors reacted cautiously to the results. Concerns focused on the record capital expenditures, the stabilization of Azure growth at 39% versus the 40% pace seen in the prior quarter, and the concentration of 45% of the backlog with OpenAI. These factors tempered enthusiasm for the earnings beat, as market participants weighed the long‑term benefits of AI infrastructure against short‑term margin compression and capacity constraints.
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