Microsoft Corp. posted fiscal second-quarter results that surpassed Wall Street expectations, with revenue climbing 17% to $81.3 billion against forecasts of $80.27 billion, as reported by Reuters. Net income soared 60% to $38.5 billion, or $5.16 per share, boosted by a $7.6 billion gain from its OpenAI investment following the startup’s restructuring. Yet shares plunged more than 7% in extended trading, as investors fixated on elevated capital spending and questions over artificial intelligence returns.

The Intelligent Cloud segment, home to Azure, delivered $32.9 billion in revenue, up 29% year-over-year and topping the $32.4 billion StreetAccount consensus, per CNBC. Azure and other cloud services specifically grew 39%, edging past the 38.8% estimate cited by Visible Alpha and just shy of the prior quarter’s 40% pace. Commercial cloud revenue crossed $50 billion for the first time, up 26%, underscoring sustained demand amid capacity constraints.

Backlog Boom Signals Long-Term Demand

Microsoft’s remaining performance obligations, or contracted backlog, more than doubled to $625 billion, surpassing Oracle’s $523 billion figure from December, according to The Wall Street Journal. Roughly 45% stemmed from OpenAI commitments, including a $250 billion pledge for Azure services, heightening concerns about over-reliance on the partner. Jefferies analyst Brent Thill noted on CNBC’s Closing Bell Overtime, “The backlog is really good, but the disclosure that OpenAI is 45% of their backlog, it goes back to the situation where, Can OpenAI achieve these financial goals to pay Oracle, Microsoft and many of the providers.”

CEO Satya Nadella emphasized in the earnings release, “We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises,” as quoted on Microsoft’s investor site. This reflects Azure’s dual growth from AI workloads and traditional enterprise needs like storage and data management.

Capex Surge Fuels Investor Skepticism

Capital expenditures ballooned to $37.5 billion, up 66% year-over-year and exceeding the $34.31 billion estimate, driven by data center expansions and AI infrastructure. The company plans to double capacity over two years, including its Maia 200 chip for inference tasks, which management claims is cheaper and faster than rivals for certain uses. Collectively, Big Tech firms like Microsoft, Alphabet, Meta and Amazon eye over $500 billion in AI spending this year, amplifying payoff doubts.

Gross margins narrowed to just over 68%, the tightest in three years, reflecting AI investment costs despite efficiency gains in Azure. Stifel analyst Brad Reback highlighted investor focus on whether Azure growth outpaces these outlays and proves AI demand’s profitability, per The Wall Street Journal.

OpenAI Partnership Evolves Amid Scrutiny

OpenAI’s October overhaul granted Microsoft a 27% stake in its for-profit arm and extended IP rights through 2032, but allowed the AI firm to diversify cloud providers beyond Azure exclusivity until AGI or 2030. This $1.4 trillion pledged spend by OpenAI raises execution risks, especially as competitors like Anthropic committed $30 billion to Azure while Google advances with Gemini models and Anthropic’s Claude.

Analyst Patrick Moorhead posted on X, “Selling $MSFT AH on >$50B cloud business and $625B RPO? Oh OK! And, no, RPOs not all OpenAI, more likely 65% non-OpenAI. That’s mind-bogglingly huge,” linking to his thread. Commercial bookings surged 230% from 112% prior, blending large deals and broad uptake.

Market Reaction Highlights High Bar

Despite beats, shares fell over 5%, with X users like @StockSavvyShay noting RPO’s 110% inflection and @danielnewmanUV calling the $625 billion figure a “monster” indicator of AI growth, estimating less than half OpenAI-tied. Post-earnings sentiment split, with some viewing the dip as a buying opportunity amid capacity-constrained demand outstripping supply.

Microsoft returned $12.7 billion to shareholders via dividends and buybacks, up 32%. Productivity and Business Processes hit $34.1 billion, up 16%, while More Personal Computing dipped 3% to $14.3 billion. Azure’s momentum persists, but sustained acceleration and margin recovery will dictate investor confidence in the AI trajectory.

Broader AI Infrastructure Push

The results spotlight Microsoft’s “super factory” vision of interconnected data centers, amid power and GPU shortages. Prior quarters saw Q1 Azure at 40%, with guidance for ongoing constraints. OpenAI’s public benefit corp shift introduces earnings volatility, prompting non-GAAP outlooks excluding such impacts.