Microsoft announced its results for the second quarter of fiscal year 2026, which included staggering figures. The company surpassed the significant milestone of $50 billion in quarterly revenue from its cloud business, while its backlog more than doubled to $625 billion (approximately CZK 15 trillion). Nevertheless, shares of the technology giant fell nearly 6% after the market closed.
Investor nervousness stems from a combination of slowing Azure revenue growth and skyrocketing capital expenditure on AI. Microsoft acknowledged that capacity constraints will continue at least through the end of the fiscal year in June, raising questions about the company's ability to keep pace with demand for AI.
Backlog
During its conference call with analysts, Microsoft revealed that OpenAI accounts for approximately 45% of its commercial bookings backlog. The company did not disclose this figure in the previous quarter. In October, OpenAI committed to spending $250 billion (about CZK 6 trillion) on Azure services, which contributed significantly to the increase in the backlog.
Some Wall Street analysts expressed concerns about Microsoft's dependence on OpenAI. However, CEO Satya Nadella emphasized that acquiring Azure customers is important, but it must not come at the expense of the company's other services. "Acquiring an Azure customer is very important to us, but so is acquiring an M365, GitHub, or Dragon Copilot customer," Nadella said.
Massive infrastructure investments
Microsoft spent $34.9 billion on capital expenditure in the first quarter of fiscal year 2026, with roughly half going toward GPU and CPU chips used in Azure data centers. In the second quarter, this spending rose to $37.5 billion (about CZK 900 billion), representing a year-over-year increase of 66%. Total spending for the first half of the year reached $72.4 billion.
Keith Weiss, head of U.S. software research at Morgan Stanley, noted during the call: "One of the fundamental issues weighing on investors is that capital expenditure is growing faster than we expected, while Azure may be growing a little more slowly than we expected. This essentially raises concerns about return on investment."
Azure growth is slowing
Azure growth slowed from 40% in the first quarter to 39% in the second. Chief Financial Officer Amy Hood said during the call: "We continue to see strong demand across workloads, customer segments, and geographic regions, and demand continues to exceed available capacity." Hood rejected a direct correlation between capital expenditure and Azure revenue. She explained that Microsoft must allocate GPUs and CPUs across many different areas—including the growth of first-party applications such as Microsoft Copilot, investments in research and development, and acquired talent. "Ultimately, what remains goes toward supporting Azure capacity, where demand continues to grow," Hood said.
If Microsoft had allocated all new GPUs from the first and second quarters exclusively to Azure, growth would have been significantly above the 39% reported by the company.
Positive results despite concerns
Despite investor concerns, most of the earnings report was positive. Microsoft reported second-quarter revenue of $81.3 billion, an increase of 17% from $69.6 billion a year earlier. Operating income rose 21% to $38.3 billion, while earnings per share increased 24% to $4.14.
Hood emphasized that approximately $344 billion of the backlog comes from a diverse range of customers other than OpenAI, representing year-over-year growth of 28%. "Roughly 55%, or approximately $350 billion, relates to the breadth of our portfolio and customer base, across solutions, across Azure, across industries, and across geographies," Hood said. "Frankly, I think we have a very high degree of confidence in that."
Nadella added that investors should evaluate performance across the entire AI business, not just Azure, but also Microsoft 365 Copilot, GitHub Copilot, Dragon Copilot, and Security Copilot.
Sources: businessinsider.com and finance.yahoo.com
