Why Microsoft Stock Plunged on Thursday
Key Points
Microsoft reported quarterly earnings that beat expectations, but investors wanted more.
The company continues to spend heavily on capex to meet demand for artificial intelligence and cloud services.
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Shares of Microsoft (NASDAQ: MSFT) were taken out to the woodshed Thursday morning, plunging as much as 12.6%. As of 11:58 a.m. ET, the stock was still down 11.8%.
The catalyst that sent the tech giant tumbling was its quarterly earnings report. Despite delivering solid results, investors wanted more.
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For its fiscal 2026 second quarter (ended Dec. 31), Microsoft delivered revenue of $81.3 billion, an increase of 17% year over year and 15% in constant currency. This drove adjusted earnings per share (EPS) to $4.14, an increase of 24% or 21% in constant currency. The adjusted results excluded the impact of its OpenAI investment.
For context, analysts' consensus estimates were calling for revenue of $80.3 billion and EPS of $3.92, so Microsoft easily surpassed Wall Street's expectations.
Overall, Microsoft's major business units delivered. The company's productivity and business processes segment grew revenue by 16% to $34.1 billion, while the more personal computing segment delivered revenue of $14.3 billion, a decline of 3%. Intelligent cloud revenue of $51.5 billion increased 29%, while Azure Cloud increased 39%. All three segments edged past expectations, but investors wanted more.
There was also some concern about Microsoft's capital expenditures (capex) of $37.5 billion in Q2, up from $26.6 billion in the prior-year quarter. Microsoft continues to struggle to supply sufficient cloud and data center capacity to meet existing AI demand. Management continues to balance capex spending against AI demand as it builds out its data center infrastructure -- where nearly all its AI services reside.
After today's shellacking, Microsoft's trailing 12-month price-to-earnings (P/E) ratio has fallen to 30, putting it in line with many of the other tech giants. Management noted that its cloud and AI growth would vary from quarter to quarter as additional capacity comes online and that Microsoft is building for the long term.
As such, I view today's drubbing as a buying opportunity, particularly for long-term investors. Nothing to see here, folks. Move along.
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Danny Vena, CPA has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
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