Microsoft Corp (NASDAQ:MSFT)'s latest quarterly earnings drew a mixed reaction from analysts, as strong revenue growth driven by Azure and artificial intelligence was tempered by concerns over heavy capital spending and the pace at which AI investments are translating into earnings growth.
The company reported December-quarter revenue of $81.27 billion, beating Wall Street estimates of $80.28 billion, while earnings per share also topped expectations.
Azure revenue grew about 38% year-on-year in constant currency, broadly in line with forecasts, as demand for AI-related cloud services continued to exceed Microsoft’s available capacity.
Wedbush said the results underscored Microsoft’s long-term positioning in AI, even as investors remain uneasy about near-term trade-offs. The firm maintained its “outperform” rating but cut its price target to $575 from $625.
“Microsoft delivered its FY2Q26 results which featured beats across all key metrics as the company is capitalizing on the heightened momentum seen in the AI Revolution,” Wedbush said. However, it noted that “the Street wanted to see less cap-ex spending and faster cloud/AI monetization…and coming out of the gates it’s the opposite.”
Wedbush argued that Microsoft’s aggressive investment cycle remains necessary, calling AI adoption a “multi-year journey” and describing 2026 as “the inflection year for AI and MSFT.” The brokerage added that any post-earnings weakness should be viewed as a buying opportunity for long-term investors.
The firm highlighted strong commercial demand, with bookings up 230% year-on-year and remaining performance obligations rising to about $625 billion, driven by large Azure commitments. While OpenAI now accounts for roughly 45% of commercial RPO, Wedbush said growth from other customers remains robust as Microsoft expands data-centre capacity.
UBS was more cautious, pointing to a lack of upside versus higher investor expectations in key segments as a driver of the stock’s after-hours decline.
“Microsoft reported solid overall numbers, with the stock’s fade in the after-market likely a function of the lack of upside in both Azure and the big M365 apps segment,” UBS said. Azure growth of 38% came in “a shade below the 39% growth bogey,” while Microsoft 365 apps revenue was in line with guidance but below UBS’s forecast.
UBS said Microsoft’s decision to allocate scarce GPU capacity toward first-party products such as Copilot effectively capped Azure growth in the quarter, a trade-off that some investors remain unconvinced by.
“The fact that BOTH Azure and the M365 segments fell a bit short is the key negative we’re hearing,” UBS said, though it reiterated its buy rating, citing strong backlog visibility and accelerating capacity additions.
More sceptical commentary focused on the cost of Microsoft’s AI push. Kathleen Brooks, research director at XTB, said investors were frustrated that heavy spending is not yet driving faster earnings growth.
“Overall, investors are disappointed that Microsoft’s capex spend and early foray into AI with ChatGPT is not significantly boosting earnings growth,” Brooks said. Microsoft reported quarterly capital expenditure of $37.5 billion, above forecasts, which she said triggered the negative market reaction.
While Azure met expectations and OpenAI contributed meaningfully to earnings, Brooks said “a quarter of the EPS gain coming from Microsoft’s main AI bet is not enough for investors who want more signs of AI monetization.”