The share price of Microsoft (MSFT 0.74%) sank despite the tech giant reporting strong quarterly results for its fiscal 2026 second quarter. The drop appears to be largely attributed to higher operating expense guidance and its dependence on OpenAI. The stock is now down slightly over the past year, as of this writing.
Let's dig into the company's report and prospects to see if this dip is a buying opportunity.
NASDAQ: MSFT
Key Data Points
Cloud growth leads the way
Microsoft's cloud computing unit, Azure, once again was its biggest growth driver in the quarter, with revenue soaring 39% (38% in constant currencies). It was the 10th straight quarter that Azure revenue climbed by 30% or more, as demand for compute power and artificial intelligence (AI) services continues to drive results. Commercial bookings, which should be a harbinger of future revenue, soared 230%, led by large commitments from OpenAI and Anthropic.
Image source: Getty Images.
Microsoft's total revenue rose by 17% year over year to $81.3 billion, with adjusted earnings per share (EPS) climbing 24% to $4.14. The results topped the analyst consensus for $80.3 billion in revenue and $3.97 in EPS, as compiled by LSEG.
Overall "intelligent cloud" revenue, which includes Azure, increased by 29% year over year to $32.9 billion. Its productivity and business processes segment, where Microsoft 365 and LinkedIn sit, saw revenue rise 16% year over year to $34.1 billion. Growth was strong across its four main solutions in the segment (in the table), led by a 29% jump in Microsoft 365 Consumer cloud revenue, helped by an earlier price increase and 6% subscriber growth.
| Product | Q2 Revenue Growth (YOY) |
|---|---|
| Microsoft 365 Commercial | 17% |
| Microsoft 365 Consumer | 29% |
| 11% | |
| Dynamics | 19% |
Data source: Microsoft press release. YOY = Year over year.
Revenue in its "more personal computing" segment, which is home to Windows and Xbox, fell by 3% year over year to $14.3 billion. Its search and news advertising business, which is also part of the segment, led the way with revenue rising 10%. Windows OEM and device revenue, meanwhile, grew by 1%, while Xbox revenue slipped 5%.
Looking ahead, the company forecast fiscal 2026 Q3 revenue of between $80.65 billion to $81.75 billion, while analysts were looking for revenue of $81.19 billion. It projected Azure revenue would climb by between 37% and 38% in constant currencies.
Is it time to buy the dip?
With its stock now trading at a forward price-to-earnings (P/E) ratio of 26 times based on fiscal 2026 analyst estimates (ending June 2026) and 23 times fiscal 2027 estimates, Microsoft's stock is attractively priced for the growth it is producing. Azure is its main growth engine, and its still-tight relationship with OpenAI ensures this strong growth will continue over the next several years. Meanwhile, it's also seeing momentum with its Copilot AI assistants, with daily active users up 10x year over year and seats climbing 160%.
Given the strength it is seeing with Azure and copilots, I'd be a buyer of the stock on this dip. While its reliance on OpenAI adds some risk, if OpenAI fails, so does most of the AI market at this point.
