MSFT delivered a clean beat across revenue and earnings in the 2Q, the 14th consecutive beat at earnings time, though capital spending was higher than expected, and the stock was trading down ~4% in afterhours trade.
Headline Results:
- Revenue: $81.3bn vs $80.3bn est (+1.2% beat, +21% YoY)
- Adjusted EPS: $4.14 vs $3.91 est (+5.6% beat)
- Microsoft Cloud revenue: $51.5bn, +26% YoY
Segments
- Intelligent Cloud: $32.9bn vs $32.4bn est
- Azure growth: +39% YoY vs ~38% est, however, down slightly from 40% growth last quarter
- Productivity & Business Processes: $34.1bn, +16% YoY
- More Personal Computing: $14.3bn, -3% YoY (ongoing drag)
The main problem is that capex keeps climbing, with capital expenditure (ex leases) ~26% above expectations as AI infrastructure spend continues to surge. The CFO reiterated capex growth will accelerate further in FY26, and this is weighing on margins, which is where the markets focus has turned to i.e. margins now matter more than growth – investors are wary of open-ended AI spending. Ultimately, near-term valuation could be capped until capex intensity peaks.
MM remains long and bullish MSFT US
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