According to Forbes, Microsoft’s Q2 fiscal 2026 revenue hit $81.27 billion, beating estimates, with EPS at $4.14. Azure’s growth, however, is projected to slow to 37-38% next quarter, just meeting expectations. The real shocker is that OpenAI accounts for a whopping 45% of Microsoft’s $625 billion commercial backlog, thanks to a $250 billion cloud spending commitment. This single deal inflated Microsoft’s total backlog by 110% year-over-year. Meanwhile, the company forecasted operating margins dipping to about 45.1% as it ramps up AI infrastructure spending, with capital expenditures hitting a $37.5 billion quarterly run rate.
The Azure Growth Wall
So, is 37% cloud growth bad? Not in a vacuum. But for a stock priced like Microsoft‘s, it’s all about the narrative. Investors were banking on acceleration, not stabilization or slight deceleration. This is the third straight quarter of slowing Azure growth. And that’s a problem when you’re spending money like there’s no tomorrow on AI data centers. The market wants to see those massive capex investments translate into explosive growth, not just maintain the status quo. When you’re guiding “in-line” at the forefront of a supposed revolution, it feels like a miss.
The OpenAI Dependency Trap
Here’s the thing that really changes the story. Nearly half of Microsoft’s future revenue promise hinges on one customer: OpenAI. That’s an insane concentration of risk for a $3.4 trillion company. Look, it shows the sheer scale of their partnership, but it also creates a massive vulnerability. What if OpenAI’s own revenue stumbles? That $250 billion backlog commitment suddenly looks a lot less solid. Excluding that deal, Microsoft’s backlog grew a healthy but unspectacular 28%. The OpenAI deal is both the crown jewel and the potential Achilles’ heel.
The Margin Pressure Game
And then there are the margins. Forecasts are down, not up. That $37.5 billion quarterly capex is a staggering sum, even for Microsoft. The big question now is: what are they buying? Are they building infrastructure that will print money for years, or are they just funding a loss leader for OpenAI? If it’s the former, the stock will be fine. If it’s the latter, and margins keep compressing while growth slows, the valuation gets harder to justify. This is the core tension in the stock right now.
Buying Opportunity or Trap?
Now, with the stock down, the P/E is around 30x trailing earnings. That’s not cheap, but it’s below Microsoft’s historical average of 35x. From a pure numbers perspective, you could argue the pessimism is baked in. The street’s average price target still suggests a big upside. But this isn’t just a numbers play anymore. It’s a bet on whether Azure re-accelerates and these AI investments actually pay off in 2026 and beyond. It’s become a “show me” story. The risk-reward might be attractive here, but the uncertainty is higher than it’s been in years. Basically, do you trust the AI gamble?
