Microsoft just flipped a $10 billion accounting win from its OpenAI investment restructuring, but investors aren't buying the good news. The software giant's shares tumbled 5% after hours Wednesday despite beating earnings expectations, as Azure cloud growth decelerated to 39% and a bombshell disclosure revealed that OpenAI now represents 45% of Microsoft's entire commercial backlog. The Q2 results expose the double-edged sword of Microsoft's AI bet: a massive paper gain today, but growing dependency on whether OpenAI can deliver on its $250 billion cloud commitment.
Microsoft just posted a fiscal second quarter that perfectly captures the AI era's contradictions: record-breaking commitments paired with nagging doubts about execution.
The Redmond giant delivered $81.27 billion in revenue for the quarter ending December 31, beating the $80.27 billion consensus and marking 16.7% year-over-year growth. Adjusted earnings hit $4.14 per share, topping expectations of $3.97. But the stock dropped 5% in extended trading as investors fixated on what's slowing down rather than what's speeding up.
The headline number that moved markets? Azure and other cloud services grew 39%, down a tick from 40% in the prior quarter. Analysts had expected somewhere between 38.9% and 39.4%, so Microsoft technically delivered. But in the high-stakes game of cloud infrastructure, even meeting expectations feels like losing ground when you're racing against Amazon Web Services and scrambling to monetize billions in AI investments.
Then there's the OpenAI situation, which is where things get interesting. Microsoft reported $9.97 billion in other income this quarter, a dramatic swing from $2.29 billion in other expenses a year ago. The source? A dilution gain triggered when OpenAI completed its restructuring in October, converting its for-profit arm into a public-benefit corporation. Microsoft's ownership stake decreased, and accounting rules forced the company to book a massive paper gain.
