Microsoft shares fell sharply in after-hours trading despite the company reporting stronger-than-expected Q2 earnings, as analysts and investors expressed growing concerns over slowing Azure revenue growth, rising capital expenditures, and Microsoft’s increasing dependence on OpenAI for a significant portion of its cloud business.
During the earnings call, Wall Street pressed CEO Satya Nadella and CFO Amy Hood on whether Azure’s growth is losing momentum and how sustainable Microsoft’s current AI-driven expansion really is. The company revealed that its commercial cloud backlog, known as remaining performance obligations, surged 110% year over year to $625 billion, but roughly 45% of that total is now attributed to OpenAI.
This disclosure raised fresh questions about Microsoft’s exposure to a single customer, especially as the company continues to spend aggressively on AI infrastructure. Capital expenditures jumped 66% from a year earlier to $37.5 billion, driven largely by investments in GPUs and data centers needed to support AI workloads.
Hood said Microsoft faces ongoing capacity constraints and must carefully allocate computing resources between first-party products like Copilot, research and development, and growing Azure demand. Meanwhile, OpenAI executives have also acknowledged that limited compute is slowing product development, highlighting the strain on cloud capacity across the AI ecosystem.
Despite management emphasizing the strength of the partnership, some analysts warned that Microsoft’s cloud growth may become increasingly fragile if OpenAI demand fluctuates or if returns on massive AI investments take longer than expected to materialize.