Microsoft stock steadies after earnings selloff as AI spending takes center stage

Microsoft stock was little changed late Friday after a volatile two-day stretch that knocked the shares sharply lower following the company’s latest quarterly update. Investors are weighing strong demand signals in cloud and AI against the near-term hit to margins from record infrastructure spending. As of 7:43 p.m. ET on Friday, Jan. 30, Microsoft shares were $430.29, down $3.27 (-0.75%) from the prior close.

Microsoft stock pulls back after capex surge

The shares tumbled on Thursday, Jan. 29, after Microsoft reported fiscal second-quarter results late Wednesday, Jan. 28. While revenue and earnings topped expectations, the market response focused on how quickly AI-related investments translate into incremental profit and faster cloud growth.

The move mattered beyond one company: Microsoft is one of the largest constituents in major U.S. equity indexes, and sharp swings can influence broader market sentiment—especially during a busy earnings season for mega-cap technology.

What the quarter showed

Microsoft’s fiscal second quarter (covering October–December 2025) delivered $81.3 billion in revenue, up about 17% year over year, with earnings of $4.14 per share. The results reinforced the company’s scale across enterprise software and its ability to grow through large platform transitions.

Cloud remained the core narrative. Azure and related cloud services grew at a robust pace, but the growth rate cooled slightly from the prior quarter—an incremental change that can carry outsized weight for a company of Microsoft’s size.

Why investors focused on AI spending

The sharp reaction centered on capital intensity. Microsoft’s quarterly capital expenditures rose to a record $37.5 billion, up roughly two-thirds from a year earlier, reflecting aggressive build-out of data center capacity and computing hardware to support AI workloads.

That spending is a double-edged story for investors:

• It signals demand: management is building capacity because customers are buying.

• It pressures profitability: higher depreciation and operating costs can weigh on margins before new revenue scales enough to offset them.

In practice, the market is trying to answer one question: will the near-term margin drag be temporary, or does it represent a new baseline level of spending to compete in AI at the frontier?

Backlog numbers add confidence—and questions

Microsoft also highlighted a major contracted-demand indicator: remaining performance obligations (a measure of revenue under contract but not yet recognized) rising to $625 billion. That kind of backlog can offer unusual visibility into long-term demand, especially for cloud and AI services.

At the same time, concentration is part of the debate. A large share of the backlog is tied to AI-related commitments connected to OpenAI. The figure underscores Microsoft’s leverage to the biggest AI workloads in the market, but it also makes investors more sensitive to how quickly those commitments convert into recognized revenue and sustainable margins.

What to watch next

Near term, Microsoft’s stock performance is likely to hinge on a few measurable checkpoints rather than broad AI narratives.

First, watch Azure growth and mix. If the company can show that AI workloads are lifting overall cloud consumption—without offsetting slowdowns elsewhere—confidence in durable re-acceleration should improve.

Second, track capital expenditure and margin commentary. If management signals that capex growth is peaking or becoming more efficient (more revenue per dollar of build), markets may become more comfortable with the investment cycle. If spending continues rising faster than revenue, the pressure point may persist.

Third, monitor backlog conversion and customer demand signals. Large contracted figures matter most when they translate into recognized revenue on predictable timelines. Any updates on delivery capacity, data-center lead times, or AI service availability can influence expectations for how quickly the backlog turns into sales.

Finally, watch the broader competitive frame in enterprise AI. Microsoft’s advantage is distribution—Azure, Microsoft 365, and developer tools—paired with AI capabilities. The key question for investors is whether that distribution produces monetization fast enough to justify today’s infrastructure build.

Sources consulted: Microsoft Investor Relations; Yahoo Finance; Reuters; Associated Press; Bloomberg.