Microsoft’s Azure Growth Slows: Should Investors Seize the Opportunity?
Key Takeaways on Microsoft’s Latest Earnings Report
Microsoft (NASDAQ: MSFT) shares dropped as revenue from its Azure cloud platform was at the lower end of projections, although it remains the primary growth engine for the company. This decline resulted in the stock slipping into slightly negative territory for the year as of this report.
Let’s analyze the company’s results to determine if now is a good time to consider purchasing shares.
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Azure’s Performance
Once again, Azure took center stage in Microsoft’s earnings report. The unit reported a revenue growth of 31% in the fiscal second quarter, which was a slowdown from the 33% growth in Q1. This growth fell at the low end of its projected range of 31% to 32% for fiscal Q2.
The company highlighted a significant milestone, noting that its AI business surpassed a $13 billion annual revenue run rate, with Azure AI revenue increasing by 157% year over year. Additionally, Azure OpenAI applications saw a doubling in growth, contributing to increased adoption of its SQL Hyperscale and Cosmos DB solutions. Furthermore, OpenAI is making larger commitments to Azure.
Overall, Microsoft’s “intelligent cloud” segment experienced a 19% year-over-year revenue increase, totaling $25.5 billion.
Looking forward, Microsoft anticipates Azure revenue growth of 31% to 32% for fiscal Q3. However, the company had previously expressed expectations for accelerated growth in the second half of the fiscal year, attributing recent challenges to its non-AI Azure business. This was coupled with ongoing capacity constraints.
Performance of Other Segments
In its productivity and business processes segment, which includes Microsoft 365 and LinkedIn, revenue rose by 14% year over year, reaching $29.4 billion. Key contributors included Dynamics products and cloud services, with both categories growing by 15%. LinkedIn saw a 9% increase in revenue while Office 365 consumer revenue climbed by 8%.
The company noted accelerated customer adoption of Microsoft 365 Copilot across various deal sizes, stating that customers who purchased Copilot during its first quarter of availability have expanded their licenses more than tenfold over the past 18 months.
In the “more personal computing” segment, which includes Windows and Xbox, revenue remained stable at $14.7 billion compared to the previous year. However, the search and news advertising business performed well with a revenue increase of 21%.
Microsoft reported total revenue growth of 12% year over year, totaling $69.6 billion, while earnings per share (EPS) increased by 10% to $3.23. These results surpassed analyst expectations, which called for $68.8 billion in revenue and $3.11 EPS according to estimates from LSEG.
For fiscal Q3, the company anticipates its intelligent cloud segment to grow between 19% and 20% in constant currency, amounting to $25.9 billion to $26.2 billion. Revenue for the productivity and business processes segment is estimated to rise by 11% to 12% in constant currency, reaching $29.4 billion to $29.7 billion. However, the more personal computing segment’s revenue is projected to decline to between $12.4 billion and $12.8 billion from $15.6 billion a year earlier.
Image source: Getty Images.
Should Investors Buy the Dip?
Despite disappointing Azure revenue and guidance, it remains the strongest aspect of Microsoft’s business. The AI division is robust, even as it grapples with capacity constraints. The company is optimistic that decreasing computing costs will drive increased consumption. It highlighted a cycle of achieving tenfold improvements due to software optimizations on inference.
Microsoft also reported accelerated revenue growth in its Office 365 commercial business as customers increasingly adopted its AI Copilot feature. The encouraging trend of expanding seats among early adopters suggests strong future performance. Priced at $30 per enterprise user per month, this represents a significant growth opportunity.
The stock is currently trading at a forward price-to-earnings (P/E) ratio below 28 based on fiscal 2026 projections. This valuation appears reasonable for a software and cloud company with strong recurring revenue and promising AI prospects.
MSFT PE Ratio (Forward 1y) data by YCharts
Overall, Microsoft’s performance was solid. While Azure’s results did not meet the heightened expectations, Microsoft continues to lead in AI technology. The current dip in stock price may present an advantageous opportunity for long-term investors to buy or increase their holdings in this enduring tech company.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
