Microsoft Stock Drops 6% Despite Record $81B Revenue

$37.5 billion in a single quarter. That's how much Microsoft spent on AI infrastructure, a staggering 66% increase from last year that sent shares tumbling 6% despite record-breaking revenue of $81.3 billion.

The market's reaction reveals a fundamental tension in today's tech landscape: investors want AI profits, not just AI promises.

When Record Numbers Aren't Enough

Microsoft delivered on almost every metric that matters. Adjusted net income jumped 23% to $30.9 billion, beating analyst expectations of $28.9 billion. Revenue climbed 17% to $81.3 billion, surpassing the $80.3 billion forecast.

Yet none of that mattered to investors fixated on a different number: capital expenditure that ballooned from $34.9 billion in the previous quarter to $37.5 billion. The company projects reaching $140 billion in capex for its fiscal year ending in June.

The contrast with Meta couldn't be starker. Facebook's parent company also reported earnings Wednesday, announcing capex could hit $135 billion this year—more than double its 2025 AI spending. But Meta's stock surged as much as 10% after executives emphasized how AI was improving advertising effectiveness.

"Meta talked up its plans for AI-targeted ad placement and was rewarded, while Microsoft posted good but not great Azure revenue and got dinged," said Dec Mullarkey, managing director of $300 billion asset manager SLC Management. "The road to AI revenue will continue to be a bumpy ride due to these massive frontloaded investments."

The Azure Growth Slowdown

Microsoft's cloud division generated $51.5 billion in revenue, up 26% from a year ago. But the devil was in the details: Azure growth decelerated to 38% year-over-year, down from 39% in the previous quarter.

That single percentage point drop was enough to spook investors who've grown accustomed to Azure's relentless expansion. Barclays analysts captured the sentiment: "We see a muted reaction [even though] overall numbers look very healthy. But a lot of focus is on Azure growth... we fear buy-side investors might have hoped for more."

CEO Satya Nadella pushed back against the narrow focus on Azure metrics. "As an investor, when you think about our capex, don't just think about Azure, think about Copilot," he told analysts. "We don't want to maximize just one business of ours. We want to be able to allocate capacity, while we are supply constrained, that allows us to build the best portfolio."

The OpenAI Dependency Risk

For the first time, Microsoft disclosed that 45% of its $625 billion book of future cloud contracts comes from a single customer: OpenAI. That revelation highlighted a concentration risk that could make investors nervous.

CFO Amy Hood tried to reframe the narrative, pointing out that $350 billion of those contracts come from other customers spanning multiple sectors worldwide. "We are more diversified than most peers and we have super-high confidence in that," she said.

Microsoft is actively working to reduce its OpenAI dependence. Rival Anthropic recently committed to purchasing $30 billion of Azure compute capacity, while Microsoft pledged to invest up to $5 billion in Anthropic alongside a $20 billion fundraising at a $350 billion valuation.

The OpenAI relationship also delivered a $7.6 billion accounting gain this quarter, reflecting the startup's increased cash position after multiple large fundraisings. Microsoft holds a 27% stake in the AI model builder, which restructured from a nonprofit to a for-profit enterprise in October. With OpenAI pursuing a new funding round at a $750 billion-plus valuation, Microsoft's $14 billion investment is generating massive returns on paper.

The AI Infrastructure Arms Race

Microsoft finds itself in an expensive race with Google and Amazon to build the infrastructure needed for advanced AI. The question isn't whether AI will transform business—it's whether the massive upfront investments will pay off fast enough to satisfy impatient investors.

The company is betting on two main revenue streams: integrating AI into its Office enterprise software to justify higher prices and better margins, and building a consumer Copilot AI app to challenge Google's Gemini and OpenAI's ChatGPT.

But with demand for Azure cloud services still outstripping supply, Microsoft faces the delicate task of allocating limited capacity across multiple AI initiatives while investors scrutinize every quarterly metric for signs of return on investment.