Earnings Call Insights: Microsoft Corporation (MSFT) Q2 2026
Management View
- CEO Satya Nadella highlighted that “the Microsoft Cloud surpassed $50 billion in revenue for the first time, up 26% year-over-year, reflecting the strength of our platform and accelerating demand.” Nadella described the company as being in “the beginning phases of AI diffusion and its broad GDP impact,” with a rapidly expanding total addressable market across the technology stack.
- Nadella detailed major infrastructure developments, including “a 50% increase in throughput… in one of our highest volume workloads, OpenAI inferencing, powering our Copilots,” and the launch of the Maia 200 accelerator, which “delivers 10-plus petaFLOPS at FP4 precision with over 30% improved TCO compared to the latest generation hardware in our fleet.” The company added “nearly 1 gigawatt of total capacity this quarter alone.”
- Microsoft expanded its AI model ecosystem, adding “support for GPT-5.2 as well as Claude 4.5,” and noted over 1,500 customers using both Anthropic and OpenAI models on Foundry. Fabric’s revenue run rate is “now over $2 billion with over 31,000 customers,” up 60% year-over-year. Foundry customers spending $1 million plus per quarter grew nearly 80%, and over 250 customers are on track to process over 1 trillion tokens this year.
- Copilot momentum was emphasized: “Daily users of our Copilot app increased nearly 3x year-over-year.” Microsoft 365 Copilot seat adds were up over 160% year-over-year, reaching 15 million paid seats, and the number of customers with over 35,000 seats tripled year-over-year.
- CFO Amy Hood stated, “With growing demand for our offerings and focused execution by our sales teams, we again exceeded expectations across revenue, operating income and earnings per share, while investing to fuel long-term growth.” Hood added, “This quarter, revenue was $81.3 billion, up 17%… Earnings per share was $4.14, an increase of 24%.”
Outlook
- Microsoft expects Q3 total company revenue of $80.65 billion to $81.75 billion or growth of 15% to 17%. COGS is projected at $26.65 billion to $26.85 billion with growth of 22% to 23%. Operating expense is anticipated at $17.8 billion to $17.9 billion, up 10% to 11%.
- Operating margins are expected to be down slightly year-over-year, excluding OpenAI investments. Microsoft Cloud gross margin percentage is projected to be roughly 65%, down year-over-year due to continued investments in AI.
- For Productivity and Business Processes, revenue guidance is $34.25 billion to $34.55 billion (14% to 15% growth), with M365 Commercial Cloud revenue growth of 13% to 14% in constant currency. Dynamics 365 is expected to grow revenue in the high teens. Intelligent Cloud revenue is forecast at $34.1 billion to $34.4 billion (27% to 29% growth), with Azure revenue growth between 37% and 38% in constant currency. More Personal Computing revenue is expected between $12.3 billion and $12.8 billion.
Financial Results
- Microsoft reported revenue of $81.3 billion, up 17%. Gross margin dollars increased 16%, and operating income rose 21%. Earnings per share was $4.14, an increase of 24%.
- Capital expenditures reached $37.5 billion, with roughly two-thirds allocated to short-lived assets (primarily GPUs and CPUs). Cash flow from operations was $35.8 billion, and free cash flow was $5.9 billion. The company returned $12.7 billion to shareholders through dividends and share repurchases, an increase of 32% year-over-year.
- Commercial bookings increased 230%, driven by large Azure commitments from OpenAI and Anthropic. Remaining performance obligation (RPO) grew to $625 billion, with 45% from OpenAI.
- Microsoft Cloud revenue was $51.5 billion, up 26%. Productivity and Business Processes revenue was $34.1 billion, Intelligent Cloud revenue was $32.9 billion, and More Personal Computing revenue was $14.3 billion.
Q&A
- Keith Weiss, Morgan Stanley: Questioned the ROI on CapEx spending and Azure growth. Amy Hood responded that CapEx is allocated across Azure, M365 Copilot, GitHub Copilot, and R&D, stating “this is about investing in all the layers of the stack that benefit customers.” Satya Nadella added, “we don’t want to maximize just one business… we want to be able to allocate capacity while we’re sort of supply constrained in a way that allows us to essentially build the best LTV portfolio.”
- Mark Moerdler, Bernstein: Asked about the ability to capture sufficient revenue over the hardware’s 6-year life, given RPO duration. Hood stated, “the majority of the capital that we’re spending today… are already contracted for most of their useful life.”
- Brent Thill, Jefferies: Inquired about the durability of the 45% backlog related to OpenAI. Hood responded, “55% or roughly $350 billion is related to the breadth of our portfolio… And when you think about that portion alone growing 28%, it’s really impressive work.”
- Karl Keirstead, UBS: Sought comments on the magnitude of capacity adds and global expansion. Hood stated, “We’re working as hard as we can to add capacity as quickly as we can… A lot of that will be added in the United States… but it also needs to be added across the globe to meet the customer demand.”
- Mark Murphy, JPMorgan: Asked about Maia 200’s significance in silicon and margin support. Nadella said, “We’re very, very thrilled about the progress with Maia 200… It’s just not even about just the silicon, the way the networking works at rack scale… we are not locked into any one thing.”
- Brad Zelnick, Deutsche Bank: Queried AI stack adoption momentum. Nadella explained, “the most important database underneath for any company that uses Microsoft today is the data underneath Microsoft 365… the agent black plane is really transforming companies.”
- Raimo Lenschow, Barclays: Asked about CPU and cloud transitions. Nadella clarified, “AI workloads are not just AI accelerator compute… we think about our commercial cloud and keep it balanced with the rest of our AI Cloud because when clients bring their workloads and build new workloads, they need all of these infrastructure elements.”
Sentiment Analysis
- Analysts expressed concerns about CapEx growth, ROI, and backlog concentration, with a slightly negative tone on the sustainability of investments and customer diversity.
- Management remained confident but occasionally defensive, using phrases like “we feel great about it” and “we are using all of that, obviously, to optimize for the long term,” while emphasizing breadth and long-term contracts.
- Compared to the previous quarter, management’s tone stayed confident but increased focus on explaining CapEx allocation and customer contract durability, while analysts showed heightened concern about concentration and investment returns.
Quarter-over-Quarter Comparison
- Revenue rose to $81.3 billion from $77.7 billion previously, while operating income, gross margin, and EPS also increased. Copilot seat growth accelerated, and Microsoft Cloud revenue exceeded $50 billion for the first time.
- Commercial bookings jumped further, and RPO increased to $625 billion from nearly $400 billion, with a larger portion attributed to OpenAI. CapEx grew to $37.5 billion from $34.9 billion, with continued emphasis on short-lived assets.
- Management’s focus on the breadth of product offerings and long-term contract security intensified, and analysts directed more questions to CapEx ROI and concentration risk compared to the prior quarter.
Risks and Concerns
- Management cited ongoing supply constraints in cloud infrastructure, increased CapEx, and the need to balance investments across business lines.
- Analysts raised concerns about the ROI of CapEx and concentration in OpenAI-related commitments. Hood explained that “much of that risk… isn’t there, because they’re already sold for the entirety of their useful life.”
- Other risks include potential volatility in memory pricing, capacity delivery timing, and the impact on gross margins from sustained investments in AI infrastructure.
Final Takeaway
Microsoft delivered record financial results in Q2 2026, surpassing $50 billion in Microsoft Cloud revenue and achieving substantial growth in Copilot adoption and AI infrastructure. The company highlighted a strategic focus on AI, broadening its platform ecosystem, and securing long-term contracts that support elevated CapEx investments. Management expressed confidence in continued momentum across commercial and enterprise lines, supported by global capacity expansion and diversified revenue streams, while acknowledging the need to address analyst concerns about investment returns and customer concentration moving forward.