Microsoft delivered robust quarterly results, yet its shares faced a sell-off. The market’s concern is squarely focused on the skyrocketing capital expenditures required to fuel its artificial intelligence initiatives. While the Azure cloud platform shows impressive growth, investors are growing impatient, questioning when the massive AI investments will translate into proportional profits.
A Closer Look at the Financials
For its fiscal second quarter of 2026, ending December 2025, the technology giant reported revenue of $81.3 billion, surpassing analyst expectations of $80.3 billion. This top-line beat, however, was overshadowed by another figure: capital expenditures surged to $37.5 billion for the period. This represents a staggering year-over-year increase of approximately 66%, with funds being channeled primarily into data centers and AI infrastructure.
The immediate market reaction was negative. On Tuesday, Microsoft’s equity declined by 2.87%, closing at $411.21 per share. The core anxiety among shareholders is clear: the pressure on free cash flow and potential margin compression raises doubts about the timeline for a return on these immense investments.
Diverging Business Segment Performance
The company’s operational results paint a picture of stark contrast between its divisions. The Intelligent Cloud segment was a standout performer, with revenue climbing 29% to $32.9 billion. Growth within the Azure cloud service itself accelerated to 39%, exceeding forecasts and underscoring sustained strong demand for cloud computing services.
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Conversely, the More Personal Computing unit told a different story, contracting by 3% to $14.3 billion. This weakness was driven by several factors:
* Sluggish sales of Windows OEM licenses
* Declining revenue from Surface devices
* A significant 32% drop in Xbox hardware sales
Mixed Signals from Market Analysts
In response to the earnings report, analyst firms have issued contrasting recommendations. Goldman Sachs adjusted its outlook, lowering the price target on Microsoft shares from $655 to $600 while maintaining a “Buy” rating. Taking an opposite view, Phillip Securities upgraded its stance on February 1, moving from “Moderate Buy” to “Strong Buy.” Their rationale posits that the recent share price pullback may present a favorable entry point for investors.
From a technical analysis perspective, the $400 level is viewed as a critical psychological support zone. A sustained break below this threshold could see the stock test the next support area around $370. The coming weeks will be telling, indicating whether the investment community is willing to grant Microsoft more time for its costly AI bet to mature or if scrutiny over its spending will intensify.
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