Microsoft Stock Falls More Than 10% As Cloud Growth Stalls

Microsoft delivered another quarter of strong financial results today, but investors were left unimpressed. 

Despite the tech giant beating revenue and earnings expectations, the company’s stock slid more than 10% in after-hours trading, potentially signaling a shift in how markets are looking at Big Tech’s ever-increasing artificial intelligence spending that still doesn’t translate into near-term returns.

By the Numbers: Q2 2026 Highlights

• Revenue: $81.3 billion (17% YoY increase)
• Adjusted EPS: $4.14 (Handily beating the $3.91 estimate)
• Capital Expenditures: $37.5 billion (A staggering 66% jump from last year)
• Cloud Backlog (RPO): $625 billion (Up 11%)

The key driver of today’s stock price drop was Azure, which is Microsoft’s cloud division. It grew 39% year-over-year, but the growth in Q2 2026 was slower than the prior quarter. This comes at a time when Microsoft’s capital expenditures due to AI data center expansion have risen by 66% year-over-year.

“Our customer demand continues to exceed our supply.” said Amy Hood, CFO of Microsoft, highlighting that available compute and infrastructure have not kept up with AI workloads.

While strong demand is a positive signal, supply bottlenecks mean revenue realization may lag behind the investment curve.

This dynamic is fueling what analysts increasingly call the “AI tax”, or a period where hyperscalers must absorb heavy infrastructure costs before profits scale. 

The contrast with Meta has been notable, as its report from today has shown immediate revenue gains from AI-driven advertising improvements, reinforcing a narrative of faster monetization which led to a jump in the company’s stock price of more than 10%. 

Microsoft has employed a wholly different strategy in comparison, one centered on long-term enterprise adoption, which usually tends to produce more durable, recurring revenue, but also one where deployment cycles move much slower.
Despite the short-term market reaction, Microsoft’s underlying demand pipeline remains strong. 

Remaining performance obligations now total $625 billion, providing long-term visibility. Analysts note that once new capacity comes online, much of this backlog could convert into higher-margin revenue streams.

For now, Microsoft sits in the middle of a costly build-out phase. The company is betting that owning critical AI infrastructure and enterprise distribution channels will secure its leadership in the next computing era. 

Whether investors will remain patient during that transition remains the key question shaping its stock performance in the months ahead.