Microsoft's Earnings Beat Expectations but Stock Plummets
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Jan 29 2026
0mins
Should l Buy MSFT?
Source: Fool
- Earnings Beat: Microsoft reported $81.3 billion in revenue for Q2 FY2026, a 17% year-over-year increase that surpassed analysts' expectations of $80.3 billion, indicating strong performance across major business units.
- Profitability Growth: Adjusted earnings per share (EPS) reached $4.14, a 24% increase, exceeding the market's forecast of $3.92; however, investor disappointment over growth rates led to a significant stock decline.
- Increased Capital Expenditure: The company’s capital expenditures rose to $37.5 billion in Q2 from $26.6 billion a year earlier, highlighting challenges in meeting AI demand, which may impact future profitability.
- Severe Market Reaction: Despite ongoing growth in cloud and AI sectors, Microsoft's stock plummeted by 12.6% due to investor concerns about future growth, lowering its P/E ratio to 30 and reflecting market caution regarding its long-term growth potential.
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Analyst Views on MSFT
Wall Street analysts forecast MSFT stock price to rise
34 Analyst Rating
32 Buy
2 Hold
0 Sell
Strong Buy
Current: 398.460
Low
500.00
Averages
631.36
High
678.00
Current: 398.460
Low
500.00
Averages
631.36
High
678.00
About MSFT
Microsoft Corporation is a technology company that develops and supports software, services, devices, and solutions. Its Productivity and Business Processes segment consists of products and services in its portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. It comprises Microsoft 365 Commercial products and cloud services; Microsoft 365 Consumer products and cloud services; LinkedIn, and Dynamics products and cloud services. The Intelligent Cloud segment consists of its public, private, and hybrid server products and cloud services. It comprises server products and cloud services, including Azure, and enterprise and partner services, including Enterprise Support Services. Its More Personal Computing segment primarily comprises Windows and Devices, including Windows OEM licensing; Gaming, including Xbox hardware and Xbox content; Search and news advertising, comprising Bing and Copilot, Microsoft News, and Microsoft Edge.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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See More
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- Increased Competitive Pressure: OpenAI faces competition from firms like Anthropic, which has opted against advertising in its AI products to maintain user trust, while OpenAI's shift to an ad model has led to lawsuits, indicating vulnerabilities in its business strategy.
- Investor Dilemma: Companies like Amazon and Microsoft are investing in OpenAI while also developing their own AI solutions, leading to questions about the rationale behind such dual investments, as a failure of OpenAI could trigger a loss of confidence across the entire AI sector, impacting other investors significantly.
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- Revenue Growth Expectations: The company projects total revenue exceeding $280 billion by 2030, with contributions from consumer and enterprise segments being roughly equal, indicating OpenAI's confidence in market demand.
- Annual Revenue Surge: OpenAI anticipates an annualized revenue run rate exceeding $20 billion in 2025, representing a 233% increase from 2024, which highlights the company's rapid expansion and improved profitability.
- Funding and IPO Outlook: OpenAI is approaching a funding round that could exceed $100 billion, attracting strategic investors like SoftBank and Amazon, with a potential pre-money valuation of $730 billion, showcasing its future IPO potential.
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