Microsoft shares experienced a major decline on Thursday, despite the company reporting strong earnings. What reportedly raised investor concerns was rising AI-related spending, and heavy reliance on OpenAI contracts. Despite beating revenue and profit expectations, the stock selloff highlighted Wall Street’s growing scepticism about the short-term returns of Microsoft’s AI investments.
Fortune reported that Microsoft shares fell 12 percent by noon during Thursday trading, wiping out over US$ 440 billion in market value, the company’s sharpest intraday decline since the pandemic. Microsoft’s stock value fell due to investors expressing concerns over a surge in capital expenditures, which rose 66 percent to US$ 37.5 billion, and the concentration of OpenAI-related revenue in Microsoft’s backlog according to a report from CNBC.
The selloff reflected broader tech market concerns over generative AI spending. Analysts and investors questioned the sustainability of deals tying large portions of cloud revenue to AI startups.
On CNBC’s Closing Bell Overtime, Brent Thill, an analyst with Jefferies, said, “The backlog is really good. But this disclosure that OpenAI is 45 percent of their backlog, it goes back to the situation where – can OpenAI achieve these financial goals to pay Oracle, Microsoft and many of the providers?”
In its earnings release FY26 Q2 , Microsoft Corp. posted second-quarter revenue of US$ 81.3 billion, up by 17 percent year-over-year, and net income of US$ 38.5 billion, a 60 percent increase from the prior year. Adjusted earnings per share were US$ 4.14, exceeding the US$ 3.97 analyst consensus.
Revenue growth was driven by Microsoft Cloud and AI initiatives. Microsoft Cloud revenue surpassed US$ 50 billion, and the company’s commercial remaining performance obligation (RPO) reached US$ 625 billion, a 110 percent increase, with 45 percent tied to OpenAI contracts. Microsoft 365 Commercial cloud revenue increased 17 percent, while Microsoft 365 Consumer cloud revenue increased 29 percent. Azure and other cloud services revenue increased 39 percent.
During an earnings call, Satya Nadella, CEO, Microsoft, said, “This quarter, the Microsoft Cloud surpassed $50 billion in revenue for the first time, up 26 percent year-over-year, reflecting the strength of our platform and accelerating demand. We are in the beginning phases of AI diffusion and its broad GDP impact. Our TAM will grow substantially across every layer of the tech stack as this diffusion accelerates and spreads. In fact, even in these early innings, we have built an AI business that is larger than some of our biggest franchises that took decades to build.”
On the subject of AI spending, Amy Hood, CFO, Microsoft, appeared to concede, “Company gross margin percentage was 68 percent, down slightly year-over-year primarily driven by continued investments in AI infrastructure and growing AI product usage that was partially offset by ongoing efficiency gains, particularly in Azure and M365 Commercial cloud, as well as sales mix shift to higher margin businesses.”
CNBC reports that over the past three months, Microsoft stock has fallen about 11 percent, while the S&P 500 index has gained 1 percent, as investors think seriously about the risk of generative AI models adversely impacting the growth prospects for traditional software.