Microsoft Beats Earnings but Tumble

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•  28 Jan 2026
 

•   MSFT  
   
  0.00%

$MSFT posted stronger-than-expected second-quarter results, yet the stock fell in after-hours trading, leaving traders scratching their heads. Despite robust revenue and profit growth, investors are cautious about Microsoft massive AI investments and potential short-term pressure on profitability.

The tech giant reported earnings of $5.16 per share on $81.27 billion in revenue, surpassing analyst estimates of $3.92 per share and $80.3 billion in revenue. On paper, it’s a solid quarter, highlighted by continued strength in the cloud. The Intelligent Cloud division, including Azure, generated $32.9 billion in revenue, comfortably above expectations, while the broader commercial cloud business brought in $51.5 billion, up from $40.9 billion a year ago. Productivity and Business Processes, including Microsoft 365, added $34.1 billion, also exceeding forecasts. Meanwhile, More Personal Computing, which covers Windows, Surface, and Xbox, came in at $14.3 billion, in line with estimates.

Yet the strong earnings failed to assuage investor concerns. Microsoft RPO remaining performance obligations, which reflect contracted revenue yet to be delivered stood at $625 billion, signaling healthy future demand, especially for AI services. However, the company continues to face capacity constraints in AI, meaning demand is outpacing the ability to deliver. To address this, Microsoft plans to sharply increase capital expenditures in fiscal 2026, exceeding last year $88.2 billion investment.

The disconnect between earnings and market reaction highlights the balancing act investors are watching closely. Microsoft is a central player in the AI boom, but growth comes with costs, and scaling AI infrastructure quickly enough to match soaring demand remains a challenge. Over the past 12 months, MSFT has gained only about 7%, a modest increase compared with Google 69% surge, reflecting investor caution around execution and profitability.

The message is clear: strong results alone aren’t enough in a market now obsessed with AI scale, delivery, and efficiency. Microsoft long-term prospects remain solid, but the near-term path will be defined by its ability to translate massive AI investment into sustainable growth and margins without shocking the market. The after-hours drop is a reminder that in the AI race, execution matters just as much as ambition.

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