Microsoft's MSFT fiscal second-quarter 2026 earnings delivered a familiar combination of strong headline numbers and unsettling fine print, reigniting investor debate over whether the company's accelerating capital expenditure program is outpacing the revenues it is meant to generate.
For the quarter ended Dec. 31, 2025, Microsoft reported revenues of $81.3 billion, up 17% year over year, with operating income rising 21% to $38.3 billion. Microsoft Cloud revenues crossed $50 billion for the first time, while Azure and other cloud services grew 39%. Non-GAAP earnings per share came in at $4.14. By conventional measures, the results were solid. Yet the stock fell nearly 5% after-hours, reflecting growing investor anxiety around one number in particular: capital expenditure.
Microsoft's capex and finance leases for the quarter reached $37.5 billion, a 66% jump from the year-ago period and well above prior market expectations. The first half of fiscal 2026 alone totaled $72.4 billion, putting the company on course for roughly $100 billion in annual infrastructure spending. Management disclosed that roughly two-thirds of second-quarter capex went toward short-lived assets — primarily GPUs and CPUs — with the remainder allocated to long-lived infrastructure intended to support monetization over the next 15 years or more.
The tension at the core of Microsoft's investment narrative is timing. Management acknowledged that customer demand continues to exceed available supply and guided for operating margins to decline slightly in the fiscal third quarter, with cost of goods sold expected to grow 22% to 23%. Capital expenditure is projected to decrease sequentially in the third quarter, though the mix of short-lived assets is expected to remain comparable to the second quarter.
The commercial remaining performance obligation stands at $625 billion, more than doubling year over year, with 45% tied to OpenAI commitments. While that backlog signals future revenue potential, it also implies sustained infrastructure obligations ahead. With R&D costs rising, Microsoft's stock remains sensitive to any signal that its AI infrastructure buildout is running ahead of demonstrable revenue conversion.
Amazon and Alphabet Face the Same Capex Reckoning
Microsoft is not alone in navigating this pressure. Amazon AMZN has guided for approximately $200 billion in capital expenditures across 2026, with Amazon's CEO Andy Jassy stating that the spending will predominantly support AWS to meet surging AI and cloud demand. Amazon's fourth-quarter 2025 AWS revenues grew to $35.6 billion, yet Amazon shares fell sharply on the spending forecast. Alphabet GOOGL, the parent of Google, is projecting 2026 capex of $175 billion to $185 billion — nearly double its $91.4 billion 2025 spend — as Google Cloud revenues surged 48% in fourth-quarter 2025. Like Microsoft, both Amazon and Alphabet face the same investor scrutiny: whether infrastructure-heavy AI investment will deliver proportionate returns before margin pressure intensifies.
MSFT’s Share Price Performance, Valuation & Estimates
MSFT shares have lost 21.2% in the past six-month period, outperforming the Zacks Computer – Software industry's decline of 24.5% but underperforming the Zacks Computer and Technology sector's return of 10.6%.
MSFT’s 6-Month Price Performance
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From a valuation standpoint, MSFT stock is currently trading at a forward 12-month Price/Sales ratio of 8.25X compared with the industry’s 6.92X. MSFT has a Value Score of D.
MSFT’s Valuation
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The Zacks Consensus Estimate for MSFT’s fiscal 2026 earnings is pegged at $16.97 per share, up 8.4% over the past 30 days. The estimate indicates 24.41% year-over-year growth.
Microsoft Corporation Price and Consensus
Microsoft Corporation price-consensus-chart | Microsoft Corporation Quote
Microsoft currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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