---
title: Microsoft Shares Drop 6% After AI Spending Rises and Cloud Growth Slows
description: Microsoft shares slide as AI spending jumps and Azure growth lags. Capex tops $37.5bn, cloud tops $50bn as UK CMA and EU probes test licensing and DMA rules.
author: Darie Nani (Editor-in-Chief)
date: 2026-01-29T13:40:11.000Z
updated: 2026-02-26T18:01:31.838Z
canonical: https://www.sovereignmagazine.com/article/microsoft-shares-drop-6-after-ai-spending-rises-and-cloud-growth-slows
image: https://cdn.nanimediahouse.com/vkla95ggawg.jpg
categories: Markets
content_type: News
region: Global
publication: Sovereign Magazine
about:
  - type: Organization
    name: Microsoft
---

Microsoft shares fell 6.2% in Frankfurt on 29 January 2026 after the company reported [capital expenditures of $37.5 billion](https://fortune.com/2026/01/28/microsoft-stock-drops-azure-growth-slows-capex-spending-q2/) in the second quarter. This marked a 66% increase year-over-year. The decline matched a drop in United States after-hours trading.

Microsoft’s Azure and other cloud services grew 38% to 39% year-over-year, below investor expectations, according to [CNBC’s earnings call coverage](https://www.cnbc.com/2026/01/28/microsoft-msft-q2-earnings-report-2026.html). The Intelligent Cloud segment reported $32.91 billion in revenue, up nearly 29%.

## AI Infrastructure Spending

Two-thirds of Microsoft’s capital expenditures went toward [AI infrastructure](https://www.sovereignmagazine.com/article/from-microsoft-s-13-billion-ai-investment-to-chatgpt-s-potential-and-risk), including graphics processing units and central processing units, [CFO Amy Hood stated](https://fortune.com/2026/01/28/microsoft-stock-drops-azure-growth-slows-capex-spending-q2/) during the earnings call. The company added nearly one gigawatt of total capacity during the quarter.

CEO Satya Nadella said Microsoft plans to increase AI capacity by over 80% in 2026. He described the company as being in the [early phases of AI](https://www.sovereignmagazine.com/article/spacex-acquires-xai-in-1-25-trillion-deal-ahead-of-record-ipo) adoption, noting its potential.

Microsoft Cloud revenue exceeded $50 billion for the first time. This growth was driven by Azure services and enterprise product integration. Azure holds a 25% share of the cloud infrastructure market. It trails Amazon Web Services’ 31% but leads Google Cloud Platform’s 11% to 13%, according to [Emma.ms market analysis](https://www.emma.ms/blog/cloud-market-share-trends).

AWS growth slowed to 17% to 20% annually, while Google Cloud Platform grew at 30% to 32%. The [global cloud infrastructure market](https://www.sovereignmagazine.com/article/red-day-for-team-red-amd-drops-17-in-worst-session-since-2017-despite-record-earnings) expanded 25% year-over-year in the second quarter of 2025.

## Commercial Backlog and Demand

Microsoft’s commercial remaining performance obligation reached $625 billion, up 110%. This figure includes OpenAI’s $250 billion cloud commitment, [CNBC reported](https://www.cnbc.com/2026/01/28/microsoft-msft-q2-earnings-report-2026.html). It represents future revenue from existing contracts.

Hood said demand continues to exceed supply, which justifies the capital spending increases. She noted allocations for Azure demand, first-party AI services, research and development, and [equipment replacement](https://www.sovereignmagazine.com/article/databricks-raised-7-billion-while-saas-stocks-lost-285-billion).

Regulatory challenges are also a concern. Microsoft settled with the Cloud Infrastructure Service Providers in Europe to avoid an immediate European Union antitrust fine. The settlement involved revising licensing policies. The European Commission is investigating whether Azure qualifies as a core platform service under the Digital Markets Act, [Reuters reported](https://www.reuters.com/sustainability/boards-policy-regulation/european-commission-probes-cloud-computing-services-by-amazon-microsoft-2025-11-18/). The UK Competition and Markets Authority issued provisional findings in early 2025. These findings criticized Microsoft’s cloud licensing terms, according to [SAMexpert’s regulatory analysis](https://samexpert.com/microsoft-antitrust-pressure/).

## Analyst Perspectives

Wedbush projected that Azure and Microsoft 365 Copilot could generate $25 billion in sales, according to [TheStreet’s coverage](https://www.thestreet.com/investing/stocks/goldman-sachs-revamps-microsoft-stock-price-target-before-earnings). Goldman Sachs raised its price target for Microsoft shares ahead of the earnings announcement.

Concerns persist about [operating margin pressure](https://www.sovereignmagazine.com/article/the-ai-investment-paradox-is-the-bubble-about-to-burst). This pressure stems from increased memory chip costs and the sustainability of current spending levels. [Microsoft reported overall revenue growth](https://www.sovereignmagazine.com/article/apple-reaches-lowest-nasdaq-correlation-in-20-years-as-ai-spending-unnerves-investors) of 17% for the quarter.

## Further context

**Q: Why is AI infrastructure spending so high for tech companies?**
AI infrastructure requires massive investments in specialised hardware like GPUs and TPUs, which are essential for training and deploying large language models. Additionally, data centres consume significant energy and cooling resources, further driving up costs. The competitive race to dominate AI has led companies to prioritise capacity expansion, even at the expense of short-term profitability.

**Q: How does AI spending affect a company’s profitability and stock performance?**
High AI spending can pressure operating margins due to increased capital expenditures and operational costs. However, investors may tolerate short-term losses if they believe AI will drive long-term revenue growth. If AI investments fail to generate expected returns, stock valuations could decline, as seen in Microsoft’s recent share drop after slower-than-expected cloud growth.

**Q: What regulatory risks do cloud providers like Microsoft, Amazon, and Google face?**
Cloud providers face antitrust scrutiny over market dominance, data privacy laws, and compliance with regional regulations like the EU’s Digital Markets Act. Regulators may impose restrictions on licensing terms, data localisation requirements, or even force structural separations, which could increase costs and limit growth strategies.

**Q: How does Microsoft’s AI spending compare to its competitors?**
Microsoft is among the top spenders on AI infrastructure, alongside Google, Amazon, and Nvidia. While Microsoft allocates significant capital to AI data centres, Google and Amazon are also expanding their AI capabilities. Nvidia, as a hardware provider, benefits from this spending spree by supplying GPUs to all major cloud providers.

**Q: Is the current level of AI investment sustainable, or is a bubble forming?**
The sustainability of AI spending depends on whether these investments generate sufficient revenue. While AI adoption is growing, some analysts warn that overcapacity and high costs could lead to a correction if returns do not materialise. Companies must balance innovation with financial prudence to avoid a potential bubble burst.