Microsoft Earnings (Dec '25 qtr)

January 29, 2026

Microsoft is down ~12% at the moment. To be fair, MSFT was down 3-5% before the SAP headline about weaker backlog growth. MSFT was lower because their AI cloud business didnt beat expectations by enough.

But by all metrics, Microsoft reported a very strong quarter – 17% revenue growth, 21% operating profit growth.  Its cloud platform grew 38%.  

Microsoft’s cloud platform is called “Azure”.   Revenue in Azure grew “only” 38% last quarter.  That was only 1% higher than street estimates.  The other noteworthy item was capex spending, which rocketed up nearly 50% over the prior quarter.  The only “inline” Azure growth and the spike in capex are the two main reasons for concern this quarter.

The key question on the street this morning:  what is Microsoft spending all that money on?  Azure growth was strong.  And management noted on the call that current demand exceeds their available supply.  That’s always a good thing.  

The jump in capex spend implies that Microsoft is investing more aggressively in its own in-house AI initiatives – namely Microsoft CoPilot.  And despite lots of hype, so far the results from that have been underwhelming.  

The street is still expecting mid-high teens EPS growth for the upcoming year.  At 27x earnings, it’s not cheap, but that’s the lower end of the range over the past five years.  

Earnings growth looks good.  The street will be looking for solid growth contribution from CoPilot and other internal AI initiatives this year.