Latest / Beta Finch - Microsoft - MSFT - EN / Microsoft Q2 2026 Earnings Analysis

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Microsoft Q2 2026 Earnings Analysis · Beta Finch - Microsoft - MSFT - EN

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  Speaker 1: Welcome back to Beta Finch, your AI powered earnings breakdown,
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  Speaker 1: where we cut through the noise to bring you what
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  Speaker 1: really matters from the latest quarterly reports. I'm Alex.
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  Speaker 2: And I'm Jordan. Today we're diving into Microsoft's Q two
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  Speaker 2: two twenty twenty six results, and Wow, what a quarter
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  Speaker 2: this was.
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  Speaker 1: Before we jump in, I need to mention that this
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  Speaker 1: podcast is AI generated content for educational and entertainment purposes only.
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  Speaker 1: Nothing we discuss should be considered investment advice. Always do
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  Speaker 1: your own research and consult a qualified financial advisor before
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  Speaker 1: making any investment decisions.
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  Speaker 2: Absolutely. Now, Alex, let's talk numbers, because Microsoft just delivered
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  Speaker 2: some seriously impressive results.
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  Speaker 1: They really did, Jordan. Revenue hit eighty one point three
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  Speaker 1: billion dollars, up seven eighteen percent year over year. But
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  Speaker 1: here's the kicker. Earnings per share came in at four
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  Speaker 1: dollars and fourteen cents, which is a twenty four percent
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  Speaker 1: jump when you adjust for their open AI investment impact.
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  Speaker 1: Those are the kind of numbers that make investors sit
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  Speaker 1: up and pay attention.
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  Speaker 2: What caught my eye was Microsoft Cloud crossing that fifty
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  Speaker 2: billion dollar milestone for the first time fifty one point
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  Speaker 2: five billion dollars to be exact, growing twenty six percent.
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  Speaker 2: That's just massive scale we're talking about here. But Alex,
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  Speaker 2: there's an interesting paradox happening in the market reaction.
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  Speaker 1: Right the stock actually dropped an after hours trading despite
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  Speaker 1: these strong results. Why do you think that happened?
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  Speaker 2: It comes down to two main concerns investors. Half First,
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  Speaker 2: Capex hit thirty seven point five billion dollars this quarter.
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  Speaker 2: That's enormous spending on infrastructure, mostly GPUs and CPUs. Second,
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  Speaker 2: while Azure grew thirty nine percent, some investors were expecting
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  Speaker 2: even more aggressive growth given all that capital investment.
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  Speaker 1: That's a great point. Let me break down what Microsoft
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  Speaker 1: is doing with all that capac spending because CEO Satia
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  Speaker 1: Nadella and CFO Amy Hood had some fascinating explanations during
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  Speaker 1: the Q and A.
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  Speaker 2: Yeah, Amyhood was really transparent about this. She said, if
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  Speaker 2: they had allocated all their new GPUs just to Azure customers,
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  Speaker 2: Azure growth would have been over forty percent. But they're
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  Speaker 2: deliberately spreading that capacity across their entire AI ecosystem.
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  Speaker 1: Exactly. They're using those GPUs to power Microsoft three sixty
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  Speaker 1: five copilot GitHub Copilot, Security, Copilot, and their R and
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  Speaker 1: D efforts. It's not just about maximizing Azure. They're building
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  Speaker 1: what Nadella called the best lifetime value portfolio.
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  Speaker 2: And speaking of Copilot, the adoption numbers are incredible. Microsoft
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  Speaker 2: three sixty five Copilot now has fifteen million paid seats.
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  Speaker 2: That's up one hundred and sixty percent year over year.
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  Speaker 2: Daily active users increase ten x, and the average conversations
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  Speaker 2: per user doubled.
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  Speaker 1: Those usage metrics tell a compelling story about AI actually
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  Speaker 1: becoming sticky with enterprise customers. It's one thing to sell seats,
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  Speaker 1: but when you see usage intensity growing like that, it
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  Speaker 1: suggests real business value.
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  Speaker 2: Absolutely. And let's talk about their custom silicon efforts, because
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  Speaker 2: this was a standout moment. They launched their Maya two
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  Speaker 2: hundred acceleratored chip, which Nadella claims delivers thirty percent better
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  Speaker 2: total cost of ownership compared to their current hardware fleet.
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  Speaker 1: That's Microsoft's play to reduce their dependence on Nvidia while
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  Speaker 1: optimizing for their specific AI workloads. They're running everything from
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  Speaker 1: open AI inferencing to their own Copilot services on these chips.
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  Speaker 2: The strategic implications are huge. If Microsoft can develop superior
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  Speaker 2: custom chips for AI inferencing. That's a massive competitive mode.
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  Speaker 2: They're essentially vertically integrating their AI infrastructure stack.
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  Speaker 1: Now, one thing that raised some eyebrows was Microsoft's commercial
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  Speaker 1: remaining performance obligation, essentially their backlog of contracted revenue. It
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  Speaker 1: hit six hundred twenty five billion dollars. But here's the twist.
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  Speaker 1: Forty five percent of that is from open Ai.
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  Speaker 2: Yeah, that open Ai concentration became a hot topic during
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  Speaker 2: the Q and A. When an analyst pressed cfo Amyhood
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  Speaker 2: about the durability of that relationship. She flipped the narrative
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  Speaker 2: pretty cleverly. She emphasized that the other fifty five percent,
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  Speaker 2: roughly three hundred and fifty billion dollars, represents this incredibly
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  Speaker 2: diversified base of customers across industries and geographies. That three
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  Speaker 2: hundred and fifty billion dollars alone is larger than most
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  Speaker 2: cloud provider's entire backlogs, and it's growing twenty eight percent
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  Speaker 2: year over year.
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  Speaker 1: Smart positioning, Speaking of open Ai, there was this inter
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  Speaker 1: in'resting accounting quirk where Microsoft recorded a ten billion dollar
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  Speaker 1: gain due to open AI's recapitalization. But setting that aside,
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  Speaker 1: their core business fundamentals look really strong.
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  Speaker 2: Operating margins hit forty seven percent, which is impressive given
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  Speaker 2: all the AI infrastructure investment they're making, and free cash
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  Speaker 2: flow was five point nine billion dollars despite the massive
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  Speaker 2: capex spending.
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  Speaker 1: Let's talk guidance, because this is where things get interesting
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  Speaker 1: for investors. For Q three, they're projecting revenue of eighty
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  Speaker 1: dollars and sixty five cents to eighty one dollars and
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  Speaker 1: seventy five cents billion, which would be fifteen to seventeen
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  Speaker 1: percent growth.
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  Speaker 2: Azure is expected to grow thirty seven to thirty eight
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  Speaker 2: percent in constant currency, which is still incredibly strong. But
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  Speaker 2: here's what investors need to understand. Microsoft is deliberately constraining
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  Speaker 2: Azure growth to allocate capacity to their higher value first
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  Speaker 2: party AI applications.
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  Speaker 1: That's the key site from this earnings call. Microsoft isn't
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  Speaker 1: trying to maximize any single business line. They're optimizing their
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  Speaker 1: entire AI ecosystem for long term value creation, and there are.
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  Speaker 2: Some really compelling use cases emerging. They mentioned Alaska Airlines
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  Speaker 2: using their platform for natural language flight search BMW speeding
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  Speaker 2: up design cycles, and healthcare providers documenting twenty one million
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  Speaker 2: patient encounters through their Dragon copilot system.
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  Speaker 1: Those real world applications show AI moving beyond the hype
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  Speaker 1: phase into actual business value creation. When you see a
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  Speaker 1: major airline implementing natural language search, that's not a pilot program,
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  Speaker 1: that's production deployment.
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  Speaker 2: Looking forward, what should investors be watching?
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  Speaker 1: I think the key metrics are copilot adoption rates, Microsoft
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  Speaker 1: Cloud gross margins, and how effectively they scale their custom silicon.
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  Speaker 1: The margin story is particularly important because they're expecting some
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  Speaker 1: compression as they invest heavily in AI infrastructure.
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  Speaker 2: And the capacity utilization story. Microsoft is essentially saying, we
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  Speaker 2: could grow Azure faster if we wanted to, but we're
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  Speaker 2: choosing to allocate capacity strategically. That's a high class problem
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  Speaker 2: to have.
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  Speaker 1: The big question is whether investors will be patient with
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  Speaker 1: this strategy. Microsoft is playing a long term game building
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  Speaker 1: AI capabilities across their entire platform, rather than just maximizing
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  Speaker 1: short term Azure revenue.
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  Speaker 2: From a competitive standpoint, this integrated approach could be brilliant.
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  Speaker 2: While other cloud providers are primarily infrastructure plays, Microsoft is
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  Speaker 2: building AI directly into the productivity tools that millions of
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  Speaker 2: people use every day.
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  Speaker 1: That's a wrap on Microsoft's Q two two, twenty twenty
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  Speaker 1: six earnings. Despite some after hours volatility, this looks like
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  Speaker 1: a company executing well on a massive AI transformation across
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  Speaker 1: their entire business.
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  Speaker 2: Before we sign off, remember that everything we've discussed is
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  Speaker 2: AI generated analysis for educational purposes. Past performance doesn't guarantee
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  Speaker 2: future results. Please do your own due diligence.
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  Speaker 1: Thanks for tuning in to Beta Finch. We'll be back
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  Speaker 1: next time with another AI powered earnings breakdown. Until then,
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  Speaker 1: keep those portfolios diversified and those research reports handy.
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  Speaker 2: See you next time.
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  Speaker 1: That's all for today's earnings analysis. If you found this helpful,
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  Speaker 1: Thanks for listening.