Investor interest in Microsoft shares may have weakened in recent months, but the company posted strong financial results on Wednesday which yet again demonstrated that the AI boom is roaring on.
Microsoft reported earnings for the second quarter of fiscal year that are likely to keep the party going for Wall Street, despite slowing growth in its key cloud computing business.
Microsoft reported revenues of $81.27bn against expectations of $80.32bn, and improved from the 12.3% increase it recorded in the same quarter last year. Earnings came in at $4.14 per share against expectations of $3.92.
“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,” said the company’s CEO, Satya Nadella. “We are pushing the frontier across our entire AI stack to drive new value for our customers and partners.”
Microsoft shares fell 4% in extended trading on Wednesday after the software maker posted slowing cloud growth.
Microsoft has been one of the primary beneficiaries of the AI boom, but investor confidence in it has slipped of late. Six months ago, the company hit the vaunted level of a $4tn market capitalization. Three months ago, it beat analysts’ revenue expectations by 2.9%, reporting revenues up 18.4% year on year.
The four largest AI spenders – Microsoft, Alphabet, Amazon and Meta – are expected to spend $505bn on AI infrastructure this year alone, up from roughly $366bn in 2025.
But shares in the company have slumped 11% since as investors’ anxieties over the billions being pumped into AI without corresponding returns have increased. Despite those fears, Microsoft has exceeded Wall Street’s expectations in every quarter over the past two years.
In its last earning report, Microsoft said orders booked by its Azure cloud-computing business, which incorporates AI, “significantly” exceeded capacity. Revenue to that unit was that projected to rise 38% from a year earlier.
On Wednesday, Microsoft said Azure revenues grew 39%, compared with 40% growth in the fiscal first quarter.
“Microsoft Cloud revenue crossed $50bn this quarter, reflecting the strong demand for our portfolio of services,” said Amy Hood, executive vice-president and chief financial officer of Microsoft. “We exceeded expectations across revenue, operating income and earnings per share.”
Asked about return of investment from Azure, Hood said it was better to think about it as “an allocated capacity guide about what we can deliver in terms of Azure revenue”.
As Microsoft spends massive capital on computing capacity, she said, “we’re really making long-term decisions”, pointing to increased sales and usage across its AI products. “Then we make sure we’re investing in the long-term nature of R&D and product innovation”.
But Microsoft’s 365 Copilot AI unit is facing increased competition, including from Anthropic’s Claude Cowork, a desktop AI tool meant to act as a more accessible version of Claude Code.
Wedbush’s Dan Ives said this week he viewed Microsoft “as the clear front-runner on the enterprise hyper-scale AI front despite increasing competition from Amazon and Google”.
The most recent US productivity report showed strong gains without increased work- hours, suggesting that the gains could be attributed to AI.
