Microsoft reported strong second-quarter fiscal 2026 results driven by continued growth in cloud, AI, and business applications, while sharply increasing capital expenditures to support expanding infrastructure demand. The results highlight both the scale of Microsoft’s AI ambitions and the cost intensity required to sustain that growth.
Microsoft on January 28 posted earnings per share of $5.16 on revenue of $81.3 billion, exceeding analyst expectations. Revenue grew 17% YOY, while operating income increased 21%. Microsoft Cloud revenue surpassed $50 billion for the quarter, reflecting sustained demand across Azure, Microsoft 365, and Dynamics 365. CEO Satya Nadella described the performance as early evidence of broad AI diffusion across the company’s portfolio.
Cloud, Business Applications Offset Heavy AI Infrastructure Investment
Growth was strongest in Intelligent Cloud, where revenue rose 29% YOY, led by a 39% increase in Azure and other cloud services revenue. Productivity and Business Processes revenue reached $34.1 billion, up 16%, with Dynamics 365 growing 19% and Microsoft 365 Commercial cloud revenue increasing 17%. LinkedIn revenue grew 11%, while consumer cloud services posted faster growth at 29%.
Microsoft’s capital expenditures reached $37.5 billion for the quarter, up 66% YOY and above analyst estimates. The company stated that roughly two-thirds of that spending went toward short-lived assets such as GPUs and CPUs, showing the infrastructure demands of AI workloads. Despite strong financial results, Microsoft’s stock fell more than 6% in after-hours trading, reflecting investor concern over the pace and scale of spending.
Remaining performance obligation grew to $625 billion, up 110%, signaling long-term demand for Microsoft’s cloud services. The company returned $12.7 billion to shareholders through dividends and share repurchases during the quarter, an increase of 32% YOY. Non-GAAP results excluded the impact of OpenAI investment gains, which significantly affected reported net income.
What This Means for ERP Insiders
AI-driven cloud platforms are reshaping investment priorities across enterprise software providers. Microsoft’s results show that AI growth at scale requires sustained capital investment, particularly in computing infrastructure, which may pressure margins even as revenue accelerates. ERP and platform leaders should expect continued emphasis on AI-enabled services alongside tighter scrutiny of cost efficiency.
Business applications remain a critical growth pillar within broader cloud portfolios. The continued expansion of Dynamics 365 alongside Azure highlights the strategic importance of tightly integrated cloud and business application stacks. For ERP product and strategy leaders, this reinforces the value of aligning application roadmaps with hyperscaler cloud platforms that can absorb AI-driven innovation.
AI expansion is raising the minimum investment threshold for enterprise platforms. Microsoft’s willingness to invest aggressively in infrastructure suggests that scale and balance-sheet strength increasingly shape who can compete effectively in AI-first enterprise platforms. ERP ecosystem participants may face growing dependence on large platform providers that can sustain these investment cycles.
