Microsoft Stock Slips Premarket as AI Spending Overshadows Earnings Beat

Microsoft Corporation shares fell sharply in premarket trading on Thursday, January 29, 2026, despite the tech giant reporting second quarter earnings that exceeded Wall Street expectations. The company beat estimates on both revenue and earnings per share, with cloud revenue surpassing the $50 billion milestone for the first time.

However, investor enthusiasm was dampened by record-high capital expenditures of $37.5 billion and a slight deceleration in Azure cloud growth, raising concerns about the timeline for returns on Microsoft’s massive artificial intelligence investments.

Earnings Beat Fails to Impress Investors

Microsoft reported second quarter fiscal 2026 earnings per share of $5.16 on revenue of $81.27 billion, significantly topping Wall Street’s expectations of $3.92 per share and $80.3 billion in revenue. The strong performance was driven by Microsoft Cloud revenue reaching $51.5 billion, just ahead of the anticipated $51.2 billion.

CEO Satya Nadella emphasized that the company has built an AI business larger than some of its biggest franchises, noting they are only in the beginning phases of AI diffusion.

Despite these impressive headline numbers, the stock fell approximately 5% in extended trading and continued declining in premarket hours. The Azure cloud-computing unit posted a 38% revenue gain when adjusting for currency fluctuations, which merely met analyst projections and represented a one percentage point slowdown from the prior quarter.

This deceleration, combined with capacity constraints that continue to limit Microsoft’s ability to meet AI demand, concerned investors betting on stronger cloud performance.

The company’s net income figure received a significant boost of $1.02 per share from gains related to Microsoft’s investment in OpenAI. The value of remaining performance obligations hit $625 billion, with OpenAI accounting for 45% of this backlog following a new $250 billion deal with the AI startup.

This metric has become crucial for Wall Street to gauge overall AI demand, though questions remain about conversion timelines.

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Record AI Spending Raises Return Concerns

Capital expenditures surged to a record $37.5 billion in the second quarter, up 66% from $22.6 billion a year earlier and exceeding analyst estimates of $36.2 billion. This massive spending reflects Microsoft’s aggressive push to build out data center capacity to support AI workloads and meet growing customer demand for AI services.

The company continues to face AI capacity constraints, meaning customer demand is outpacing Microsoft’s ability to supply it, effectively capping potential revenue growth.

The market reaction to Microsoft’s spending contrasted sharply with the positive reception Meta Platforms received the same day after announcing even higher capital expenditure plans of $115 billion to $135 billion for the full year. Meta’s shares jumped more than 10% in extended trading, suggesting investors may be more confident in Meta’s AI monetization strategy.

Microsoft’s stock is up just 7% over the past 12 months, underperforming Google’s stunning 69% gain, which has been fueled by the success of its Gemini 3 AI model.

In premarket trading on Thursday, January 29, Microsoft shares were down $32.43 (6.73%) to $449.20 as of 6:06:50 AM EST, compared to the previous close of $481.63. The company’s market capitalization stands at $3.58 trillion, with a trailing P/E ratio of 30.12 and a forward P/E of 29.94.

Analysts maintain an average price target of $612.73, suggesting significant upside if the company can demonstrate clearer returns on its AI infrastructure investments.

Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.