Microsoft Q2 Earnings Preview: Can Azure's Growth Offset Soaring AI Expenses?

Microsoft plans to release its FY2026 Q2 earnings after market close on January 28. Investors are holding their breath, watching whether strong cloud computing growth will offset the surge in costs associated with AI investments.

Financial Expectations and Key Metrics According to analyst consensus summarized by StockStory, Microsoft expects this quarter’s revenue to reach $80.32 billion, a year-over-year increase of 15.3%. Compared to last year’s growth rate of 12.3%, this indicates acceleration. Adjusted earnings per share (EPS) are expected to be $3.92.

Azure and AI: Growth Engines Market optimism is primarily driven by Azure, especially its emerging Azure AI services. Visible Alpha data shows that since early 2025, market revenue expectations for this segment have been raised by nearly 25%. Analysts forecast Azure’s constant currency (CC) growth rate for this quarter to be about 37%, slightly below the previous quarter’s 39%, but still at a very high level. Evercore ISI analysts note that Azure continues to hold a “healthy competitive position” in enterprise AI transformation.

Profit Margin Clouds: Massive Capital Expenditures (Capex) While revenue prospects remain robust, Microsoft’s profitability outlook is under cautious review. S&P Global reports that Microsoft’s annual capital expenditure is expected to double from $44.5 billion in FY2024 to $97.7 billion in FY2026.

Chief Financial Officer Amy Hood previously stated that expenditures in FY2026 will surpass those in FY2025, contradicting market expectations of a slowdown in spending. Analysts expect operating profit margins this quarter to narrow to 67%, the lowest in three years.

Market Sentiment: AI Bubble Concerns Despite solid performance, Microsoft’s stock has recently underperformed. Since the last earnings report, the stock has fallen about 17.8%, and the price-to-earnings ratio (P/E) has dropped from 31 in July to currently 24. Seeking Alpha analysts note: “As more investors anticipate an AI bubble burst, considering Microsoft’s dominance in the cloud market and its enormous scale, investing in such giants could face substantial risks.”