Highlights

• Microsoft shares fell ~6% in US after-hours following Q2 FY26 earnings release.
• Capital expenditure jumped 66% YoY due to expansion in AI infrastructure and data centres.
• Azure growth remained strong but slightly below high market expectations, affecting sentiment.

Microsoft Corp (NASDAQ:MSFT) saw its shares decline roughly 6% in after-hours trading after reporting Q2 FY26 results. This contrasted sharply with Meta Platforms (NASDAQ:META), whose shares rose despite similarly aggressive AI-related capital expenditure programs.

Revenue and Profit Overview
For the quarter, Microsoft reported revenue of USD 81.3b, marking a 17% increase year on year. Cloud revenue exceeded USD 50b for the first time, while adjusted profits grew over 20%. Demand for AI-powered services, including Azure and Copilot, remained significant, with management noting that customer demand continues to outpace supply.

Despite these figures, the market response focused on the scale and timing of spending, particularly the capital expenditure increase.

AI Capex and Investor Concerns
Microsoft's capital expenditure rose 66% YoY, reflecting investments in data centres, GPUs, and other AI infrastructure. While this aligns with the company's long-term ambitions, it impacts near-term margins, drawing investor attention. Azure growth, although strong, did not surpass already-high expectations, contributing to cautious sentiment.

The narrative around AI spending also played a role. Meta’s AI investment appeared to provide immediate revenue benefits in advertising, making the capital outlay seem more directly tied to profits. Microsoft’s AI strategy, spanning cloud, enterprise software, and consumer tools, is broader but requires higher upfront investment and a longer timeline before translating into visible earnings leverage.

Implications for Investors
The decline in Microsoft’s share price reflects short-term caution rather than long-term doubts about the AI strategy. While the company continues to expand its AI capabilities, the market is waiting for a clearer link between current capital expenditure and near-term earnings growth.

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