Microsoft beat revenue and profit expectations, but the stock fell. What's the story?

Technology giant and one of the leaders of the artificial intelligence race Microsoft confidently exceeded expectations for revenue and profit in the third quarter. In addition, the company surpassed forecasts for the growth of its cloud business, which added 40% at once. However, the company's shares were down about 4% in extended trading. Investors were probably concerned about the company's steeper-than-expected cost growth.

Microsoft's revenue for the first quarter of fiscal 2026, which ended Sept. 30, was $77.67 billion - up 18 percent from the same period a year ago. Analysts had expected $75.33 billion, CNBC wrote. Adjusted earnings per share reached $4.13, while Wall Street had predicted only $3.67, according to FactSet, Barron's reported.

Net income rose to $27.7 billion. In the first quarter, Microsoft's investment in OpenAI (developer of ChatGPT) led to a $3.1 billion decline in that figure, the company said.

The revenue of Microsoft cloud services, including the Azure platform, increased by 40%. This was also slightly better than expected (+38%), reports MarketWatch. The total revenue of Microsoft Cloud business added 26% and amounted to $49.1 billion. Clouds remain an important source of growth for Microsoft, as this business benefits from the boom of artificial intelligence, writes CNBC.

At the same time, Microsoft reported a sharper increase in expenses than Wall Street had expected: this reinforced investors' concerns about the high cost of infrastructure for artificial intelligence, Bloomberg writes. Capital expenditures for the quarter totaled $34.9 billion, compared with $24 billion in the previous quarter, the agency reported. The sharp rise in costs is a response to customer demand, which Microsoft is still unable to meet, the company's investor relations director Jonathan Neilson said in an interview with Bloomberg.

"While this figure may cause concern for some, we believe it signals growing demand for AI power," said Bloomberg Intelligence analyst Anurag Rana.

The company's shares were falling by more than 3% on the premarket. The main session ended with a 0.1% drop to $541.55. Compared to the beginning of 2025, the company's securities are now 28.5% more expensive.

Microsoft's capitalization surpassed $4 trillion the day before the statements were released. The stock jumped after news of a new partnership agreement with OpenAI. Microsoft became a shareholder of OpenAI in 2019. As a result of the new deal, Microsoft will receive approximately 27% in the for-profit organization OpenAI Group PBC (Public Benefit Corporation), which OpenAI created. The value of Microsoft's stake is estimated at about $135 billion.

Microsoft shares are now advised to buy all analysts following the company: the securities, according to FactSet, 61 rating Buy or equivalent, reported MarketWatch before the publication of quarterly results. The stock was most recently upgraded from Neutral to Buy by Guggenheim analyst John Difucci as recently as Monday, the publication said. Difucci's confidence was not due to reporting expectations, but to the company's "dual monopoly" thanks to its high-margin Office applications and Windows operating system. Microsoft's Office and Windows divisions beat Wall Street's revenue expectations last quarter, CNBC noted, citing StreetAccount data.

This article was AI-translated and verified by a human editor