Microsoft Beats Top and Bottom Line Estimates -- Here's Why the Stock Is Sinking

Microsoft MSFT shares fell about 4% on early Thursday as the company signaled it will raise capital spending further in fiscal 2026 while posting stronger-than-expected fiscal first-quarter results.

The software maker said revenue for the quarter ended Sept. 30 rose 18% from a year earlier to $77.7 billion. Adjusted earnings were $4.13 per share, ahead of analyst expectations.

Cloud remained the primary growth driver. Intelligent Cloud sales reached $30.9 billion, with Azure revenue up about 40% year over year. Productivity and Business Processes revenue totaled $33.02 billion, supported by gains in Microsoft 365 commercial and consumer subscriptions and continued strength at LinkedIn.

More Personal Computing revenue was $13.76 billion, topping market forecasts.

Net income and diluted EPS were reduced by losses tied to its investment in OpenAI, which the company said weighed on results during the quarter.

Looking to the second quarter, Microsoft projected revenue of $79.5 billion to $80.6 billion, including cloud sales of up to $32.55 billion. Azure growth in constant currency is expected around 37%.

Management said increased spending on chips and infrastructure is aimed at supporting broader AI adoption and future demand.