Microsoft Q2 Earnings Preview

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•  27 Jan 2026
 

•   MSFT  
   
  +0.30%

$MSFT Microsoft is set to release its fiscal Q2 earnings this Wednesday, and investors are paying closer attention than ever to one metric: Remaining Performance Obligations (RPO). Unlike traditional quarterly revenue figures, RPO reflects the value of contracts signed but not yet recognized as income, giving a clear glimpse into long-term demand for Microsoft cloud and AI services.

Last quarter, Microsoft reported a staggering $392 billion in RPO. Analysts at Jefferies, including Brent Thill, expect the upcoming quarter to show the sharpest quarterly increase ever, driven by unprecedented commitments. Key deals include a long-term $250 billion agreement with strategic partner OpenAI and $30 billion in cloud computing contracts with Anthropic. These agreements won’t produce immediate revenue, but they offer exceptional business visibility for years ahead and signal strong commitment from leading AI companies to Microsoft Azure platform.

Azure growth is accelerating as demand for AI-powered services surges. After a period of relative slowdown, Microsoft is seeing renewed momentum, fueled in part by integrating AI tools into its enterprise offerings. Yet the company faces a significant challenge: capacity constraints. The ability to expand data centers and provide the necessary computing power isn’t keeping pace with customer demand. While this doesn’t reflect weak demand, it does create short-term revenue ceilings. To address this, Microsoft is sharply increasing capital investments, with CFO Amy Hood noting that 2026 spending will far exceed the $88.2 billion invested last year, including nearly $35 billion already spent in Q1.

Analysts note that Azure continues to outpace Amazon Web Services and Google Cloud in growth, yet Microsoft stock trades at the lower end of its historical valuation range, while Alphabet remains relatively expensive.

Expectations for the quarter include earnings of $3.92 per share on revenue of $80.3 billion, up sharply from $3.23 per share and $69.6 billion in the same quarter last year. Commercial cloud revenue is expected to rise 25% to $51.2 billion, though gross margin is anticipated to compress by 4.9% due to high infrastructure and energy costs. Productivity and business processes, including Office, Teams, and LinkedIn, should bring in $33.6 billion, with smart cloud revenue at $32.2 billion and personal computing at $14.3 billion.

Despite these strong operational metrics, Microsoft stock has risen only about 4% over the past year, trading at a $3.5 trillion valuation. While this slightly outperforms Amazon, it falls short of Alphabet massive 64% surge, driven by leadership in advanced AI models.

The upcoming earnings report isn’t just about revenue or profit it’s a window into the future of AI and cloud demand. RPO growth, major strategic deals, and Azure expansion all point to long-term upside potential, making $MSFT a key stock to watch in the AI-driven market landscape.

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