Microsoft Shares Dip After Strong Earnings Due to Higher Spending Outlook and Azure Outage

Microsoft Corporation announced financial results that surpassed analyst expectations for revenue and earnings per share. The company reported revenue of $77.67 billion, exceeding the $75.33 billion estimate, and an Earnings Per Share (EPS) of $3.72, higher than the expected $3.67, marking an 18% year-on-year revenue growth. Its Intelligent Cloud Unit, which includes Azure, saw a 28% increase to $30.9 billion, beating the $30.25 billion estimate, with Azure itself growing 40% year-on-year.

Despite these positive figures, Microsoft's stock experienced a decline in after-hours trading. This dip was primarily driven by the company's outlook for fiscal year 2026, where it anticipates higher capital expenditure (capex) than previously indicated, needed to build infrastructure for artificial intelligence (AI) demand. This contrasts with prior expectations of a capex slowdown. Additionally, a significant charge of $3.1 billion, or $0.41 per share, related to the company's investment in OpenAI impacted profitability. The market was also affected by a recent widespread outage across Azure and Microsoft 365 services, which disrupted numerous websites and applications. For the second quarter of fiscal 2026, Microsoft projects revenue between $79.5 billion to $80.6 billion and Azure growth of 37% in constant currency.

Impact This news could impact global technology stock sentiment, particularly for companies heavily invested in AI infrastructure and cloud services. Investors may reassess valuations based on higher projected spending and profitability impacts from strategic investments. The Azure outage also raises concerns about service reliability for enterprise clients. Rating: 7/10.

Difficult Terms * **Earnings Per Share (EPS)**: A company's net profit divided by the number of common shares outstanding. It indicates how much profit is earned for each share of stock. * **Intelligent Cloud Unit**: Microsoft's business segment that includes its cloud computing services like Azure, as well as server products and enterprise services. * **Azure**: Microsoft's cloud computing platform, offering a wide range of services including computing, analytics, storage, and networking. * **Fiscal Year (FY)**: A 12-month accounting period that a company uses to report its earnings. It does not necessarily align with the calendar year. * **Capex (Capital Expenditure)**: Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. * **Constant Currency**: A method of currency translation that removes the impact of foreign exchange rate fluctuations, allowing for a clearer comparison of revenue or profit growth over time.