Investors are questioning Microsoft's (MSFT 0.74%) artificial intelligence (AI)-driven growth strategy.
Shares of the software giant fell more than 7% this past week, according to data from S&P Global Market Intelligence, following its fiscal 2026 second-quarter earnings release.
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Azure's shortfall
Revenue for Microsoft's Azure and other cloud services jumped 39% in the quarter ended Dec. 31. That was slightly below Wall Street's estimates.
During a conference call with analysts, chief financial officer Amy Hood said Azure's growth would have been over 40% if Microsoft had allocated all its available graphics processing units (GPUs) to its cloud infrastructure business. But it instead chose to use some of those advanced AI chips for its first-party applications, such as Microsoft 365 Copilot and GitHub Copilot.
NASDAQ: MSFT
Key Data Points
CEO Satya Nadella said Microsoft was taking a longer-term view by allocating its supply constrained chips to areas that optimized the lifetime value of its customers.
However, judging by the stock's performance this week, many investors don't have quite as much patience as Microsoft's senior leadership team.
The OpenAI question
More worrisome is Microsoft's growing reliance on the rapidly expanding, yet staggeringly unprofitable, OpenAI.
Microsoft's remaining performance obligations ballooned to a stunning $625 billion by Dec. 31. Yet a whopping 45% of that figure is tied to OpenAI's planned expansion initiatives.
That's a concern, as the AI model developer's losses are reportedly set to triple to $14 billion in 2026, according to a recent report by The Information.
OpenAI's mounting cash burn has investors questioning whether Microsoft will actually earn the full amount of its expected future revenue, particularly if its largest customer is unable to afford its massive capital spending requirements.
