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Redmond Today
By the People, for the People
Microsoft Stock Drops 22% After Earnings Report
Investors concerned about AI software and cloud business slowdown
Published on Feb. 6, 2026
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Microsoft's stock price tumbled more than 10% after the company reported its fiscal 2026 second quarter results, which showed some modest weakness in its AI software and cloud computing businesses. The stock is now down 22% from its record high, but Microsoft remains one of the best-performing investments in history with a 580,650% gain since its IPO in 1986. The recent sell-off could be a temporary blip as the company continues to invest heavily in AI infrastructure.
Why it matters
Microsoft is a diversified tech giant with a dominant position in software, cloud computing, gaming, and other industries. Its performance is closely watched by investors as a bellwether for the broader technology sector. The company's ability to successfully navigate the AI boom will be crucial to its future growth.
The details
While Microsoft reported strong results across the board, investors were concerned about some modest weakness in its AI software and cloud businesses. Specifically, the company's Copilot virtual assistant has only been adopted by 3.7% of the 400 million Microsoft 365 licenses sold, despite it being a key growth opportunity. Additionally, Azure cloud revenue growth decelerated to 39% year-over-year, down from 40% in the previous quarter, due to a shortage of data center capacity. The Azure order backlog also surged, with 45% of that coming from OpenAI alone, raising questions about the start-up's ability to fulfill its commitments.
- Microsoft reported its fiscal 2026 second quarter results on January 28, 2026.
- The company's stock price dropped over 10% in a single day following the earnings report.
The players
Microsoft
A diversified technology company with a dominant position in software, cloud computing, gaming, and other industries.
Copilot
Microsoft's virtual assistant that is integrated into its Windows operating system, Bing search engine, Edge browser, and Microsoft 365 productivity suite.
Azure
Microsoft's cloud computing platform that offers a wide range of digital services and infrastructure for businesses.
OpenAI
An artificial intelligence research company that has a large order backlog with Microsoft's Azure cloud platform.
What’s next
Investors will be closely watching Microsoft's future earnings reports and updates on the adoption of Copilot and Azure's growth trajectory.
The takeaway
Despite the recent stock price drop, Microsoft remains a technology powerhouse with a diverse portfolio of businesses. The company's ability to successfully navigate the AI boom and address capacity constraints in its cloud computing division will be crucial to its long-term success.
