Microsoft increased spending on AI hardware to a new record. The stock fell

Microsoft's capital expenditures rose sharply in the last three months of 2025, setting a new record. This caused the company's shares to fall in extended trading on January 28, initially by 7%, then slowed to about 4%. Investors were concerned that the return on investment in artificial intelligence may take longer than expected, Bloomberg writes.

Capital spending for the second quarter of fiscal 2026, which ended Dec. 31, totaled $37.5 billion, up 66 percent from a year earlier, Bloomberg reported. The spending was also higher than analysts' forecast of $36.2 billion, the agency added. Like other big cloud players like Amazon, Microsoft is building data centers equipped with specialized chips to run generative AI models. The company is also leasing capacity from CoreWeave and Nebius, CNBC explained.

Revenue from Azure and other Microsoft cloud services, a metric closely watched by investors, increased 39% from the same period last year. In the previous quarter, growth was 1 percentage point higher, suggesting a slight slowdown. That may have been enough to disappoint investors who were counting on stronger performance from the cloud division, DA Davidson analyst Gil Luria said in a Bloomberg statement.

Analysts surveyed by StreetAccount and CNBC expected cloud revenue growth of 39.4% and 38.9%, respectively. Despite significant investments in data centers, Microsoft is having trouble getting capacity up and running quickly to meet demand, Bloomberg notes.

Microsoft also reported $9.97 billion in other income, compared to a $2.29 billion loss in the same quarter a year earlier. The changes come three months after OpenAI, the developer of ChatGPT, announced a restructuring, CNBC writes. As a result, Microsoft received approximately 27% in the for-profit organization OpenAI Group PBC (Public Benefit Corporation). The value of Microsoft's stake at the time was estimated at about $135 billion. But as it declined, the company was able to lock in a profit from the dilution of the stake, CNBC explains.

At year-end 2025, "commercial performance obligation" (a measure of unrecognized revenue to be recognized in the future) was $625 billion, up about 110%. This growth is largely due to OpenAI's new contract: the AI developer this quarter committed to spend $250 billion on Microsoft's cloud capabilities, Bloomberg writes. The startup accounted for 45% of Microsoft's order book.

For the past quarter, adjusted earnings per share totaled $4.14 versus $3.97 expected by analysts, according to LSEG, CNBC reported. Revenue rose 17% year over year to $81.27 billion, while Wall Street expected $80.27 billion. Net income was $38.46 billion - or $5.16 per share.

The Intelligent Cloud division, which includes Azure infrastructure, generated $32.91 billion in revenue for Microsoft - up nearly 29% from a year earlier and above the StreetAccount consensus forecast of $32.4 billion, CNBC notes.

The Productivity and Business Processing segment, which includes office applications, Dynamics management systems and social network LinkedIn, reported revenue growth of 16% to $34.12 billion, above StreetAccount's forecast of $33.48 billion, CNBC writes.

The More Personal Computing segment, which includes the Windows operating system, Xbox consoles, Surface computers and the Bing search engine, brought in 3% less than a year earlier: $14.25 billion. StreetAccount had forecast $14.38 billion. Gartner said PC shipments rose 9.3% in the quarter in anticipation of the end of support for Windows 10 in October.

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