Microsoft’s third-quarter fiscal 2026 results read like a tale of two realities. On one side, the software giant delivered a commercial backlog of $627 billion — a figure that nearly doubled year-over-year and left analysts scrambling for comparisons. On the other, the stock slipped in after-hours trading, a familiar pattern for a company whose AI ambitions are testing investor patience.
The tension between operational strength and market skepticism is palpable. Shares closed at €363.40 in regular trading, leaving the stock roughly 10 percent in the red since January. The relative strength index has dropped to 20, signaling the shares are technically oversold after weeks of selling pressure. At roughly €359, the stock has recovered from its March lows but remains down about 11 percent year-to-date.
OpenAI Rewrites the Partnership Playbook
The most consequential development of the quarter wasn’t on the balance sheet. Microsoft and OpenAI restructured their relationship, dismantling the previous exclusivity arrangement. OpenAI can now sell its products through any cloud provider, not just Microsoft’s Azure platform. In exchange, Microsoft secured a non-exclusive license to OpenAI’s intellectual property for models and products through 2032.
New OpenAI products will still debut on Azure first, provided Microsoft meets the technical requirements. But the shift signals a rebalancing of power. OpenAI demanded more freedom, and Microsoft — while insisting it remains the primary cloud partner — had to concede ground. The arrangement suggests the startup’s bargaining position has strengthened considerably.
Revenue Surges, Margins Feel the Squeeze
The numbers themselves leave little to criticize. Revenue climbed 18 percent year-over-year to $82.9 billion for the quarter ending in March. Earnings per share hit $4.27, roughly 6 percent above analyst expectations. Net income rose to $31.8 billion.
The Intelligent Cloud segment led the charge, growing 30 percent to $34.7 billion. Azure alone expanded 40 percent. The commercial backlog of $627 billion — a 99 percent increase — includes roughly one-quarter expected to convert to revenue within the next twelve months.
But the cost side tells a different story. Capital expenditures reached $31.9 billion in the quarter alone. For the full fiscal 2026, management targets around $190 billion in capex, with two-thirds flowing into short-lived assets like GPUs and CPUs. That spending is compressing margins: gross margin fell to its lowest level since 2022 as data center buildout accelerated depreciation charges.
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Copilot Hits Escape Velocity
One bright spot that management is eager to highlight: Microsoft’s AI assistant is gaining genuine traction. Paid Copilot users in the Microsoft 365 ecosystem surged 250 percent year-over-year to over 20 million. That marks a sharp acceleration from the figures reported in January.
CEO Satya Nadella described Copilot usage as becoming as routine as checking Outlook. CFO Amy Hood expects user growth to accelerate further in the current quarter. The rapid adoption gives Microsoft a tangible metric to counter investor concerns about whether AI spending will generate returns.
Cost Discipline Amid the Spending Spree
While capital expenditures are soaring, Microsoft is tightening elsewhere. Unlike many tech peers, the company plans to reduce headcount further in the coming year. Operating expenses are expected to rise only in the mid-to-high single digits. The belt-tightening reflects the reality that the massive infrastructure buildout demands offsetting efficiencies elsewhere.
The More Personal Computing segment offered a reminder that not all divisions are firing on all cylinders. Revenue slipped 1 percent to $13.2 billion. Windows OEM sales and Xbox services declined, though search advertising grew 12 percent, partially cushioning the blow.
What Comes Next
For the fourth fiscal quarter, Microsoft guided revenue between $86.7 billion and $87.8 billion. Management expects Azure growth to accelerate slightly in the second half of the year, even as infrastructure constraints persist.
The gap between record results and a falling stock price reflects a clear market message: investors are no longer rewarding revenue growth blindly. The $190 billion capital spending plan demands proof that it will translate into earnings power. With Copilot subscriptions accelerating and the commercial backlog at an unprecedented level, Microsoft has the raw material to make that case. Whether it can convert that potential into profits — and convince the market — will be the defining question when next quarter’s report arrives in July.
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