Microsoft Stock Plunges 7%: Cloud Growth Slows Despite Beating Earnings Expectations

Jan 29
2 min read

Microsoft shares tumbled 7% in extended trading Wednesday after the tech giant reported slowing cloud growth and issued light margin guidance, despite beating Wall Street expectations on both revenue and earnings. The stock drop erased billions in market value as investors reacted to Azure cloud growth decelerating to 39% from last quarter's 40%, while the company's $37.5 billion in quarterly capital expenditures raised concerns about AI infrastructure spending outpacing returns.

The Numbers Behind Microsoft Stock Sell-Off

Microsoft reported $81.27 billion in revenue versus the $80.27 billion expected, with adjusted earnings per share of $4.14 beating the $3.97 consensus. However, the company's operating margin guidance for the fiscal third quarter came in at 45.1%, below the 45.5% consensus. Net income surged to $38.46 billion, or $5.16 per share, up from $24.11 billion a year earlier, though the company's gross margin hit its narrowest point in three years at just over 68%.

The OpenAI Dependence Problem

Perhaps the most alarming revelation came from Microsoft's commercial bookings backlog, which surged 230% to $625 billion. However, 45% of that backlog, roughly $280 billion, comes from a single customer: OpenAI's massive cloud commitment. Jefferies analyst Brent Thill voiced investor concerns on CNBC: "Can OpenAI achieve these financial goals to pay Oracle, Microsoft and many of the providers?" The heavy concentration on one AI partner raises questions about Microsoft's cloud revenue diversity.

Massive AI Spending Continues

Microsoft's capital expenditures and finance leases reached $37.5 billion, up 66% year over year and well above the $34.31 billion analyst consensus. CEO Satya Nadella revealed the company added nearly one gigawatt of total capacity in the quarter alone, building data centers filled with AI chips from Nvidia and leasing capacity from CoreWeave and Nebius. Yet customer demand still outstrips supply, meaning billions more in infrastructure spending lies ahead.

Mixed Results Across Segments

The Intelligent Cloud segment generated $32.91 billion (up 29%), while Productivity and Business Processing delivered $34.12 billion (up 16%), both exceeding expectations. Microsoft 365 Copilot now has 15 million paid seats out of 450 million total commercial seats, suggesting massive room for growth. However, the More Personal Computing segment fell 3% to $14.25 billion, with gaming revenue dropping 9.5% amid what former Xbox executive Mike Ybarra called a "confusing" strategy. Microsoft took an unspecified impairment charge in gaming during the quarter.

Microsoft stock

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