Microsoft Earnings Preview: Azure High Growth Expected to Continue

On the Eastern time of April 29, 2026, after the market closed, Microsoft will release its financial report for the third quarter of the fiscal year 2026. As a tech giant that holds a dual role of infrastructure leader and a pioneer in commercialization in the AI track, the market is focused on three core dimensions in this financial report: the fulfillment of Azure's cloud business growth rate, the pace of capital expenditure, and the progress in commercialization of Copilot series products, with the core issue being whether the company's substantial AI investment can effectively convert into commercial value, balancing short-term profitability pressures with long-term growth potential.

Performance Expectations: Revenue Guidance is Steady, Highlighting Azure's Resilient Growth

According to the company's previously disclosed guidance, Microsoft's revenue guidance for the third quarter of fiscal year 2026 is $80.65 billion to $81.75 billion, with a median of $81.2 billion, slightly higher than the market consensus; among these, the intelligent cloud department's revenue guidance is $34.1 billion to $34.4 billion, with a growth guidance for Azure and other cloud services revenue at 37-38% (calculated at constant currency rates).

This growth rate has slightly moderated from the 39% recorded in the second quarter of fiscal year 2026, yet it remains within a historically high range. It is noteworthy that the slowdown is not due to weak demand but rather an adjustment in capacity allocation strategies: Microsoft has prioritized allocating some computing resources to internal AI applications and research teams, such as Microsoft 365 Copilot and GitHub Copilot. The company has previously stated that if all GPUs were allocated to Azure clients, the year-over-year growth of Azure revenue for the previous quarter would have exceeded 40%.

Looking back at Azure's recent growth trajectory, the logic of its high-scenery growth is clear. In the fourth quarter of 2025 (FY25Q4), Azure's growth reached 39%, with AI contributing 16 percentage points, setting a new historical record; in the first quarter of 2026 (FY26Q1), the growth rate climbed further to 40%, surpassing the previous guidance limit of 37%, mainly driven by continuous orders related to OpenAI; in the second quarter of 2026 (FY26Q2), the growth rate maintained a high level of 39%, again exceeding the guidance of 37%, with the growth rhythm only constrained by capacity limitations; for this first quarter of 2026 (FY26Q3), the company has given a growth guidance of 37-38%, which is moderately slower than the previous two quarters, but primarily due to the internal strategy adjustment of capacity priority allocation, not a weakening of demand, and the resilience of growth is still evident.

Capital Expenditure: Record Investment, Structural Changes Intensify Depreciation Pressure

In the second quarter of fiscal year 2026, Microsoft's capital expenditure (including finance lease) reached $37.5 billion, a year-on-year increase of 65.9%, far exceeding market expectations. What is more noteworthy is the significant change in expenditure structure: about two-thirds of capital expenditure was directed towards short-term assets such as GPUs and CPUs, a substantial increase compared to the previous proportion of around 50%.

This change has profound implications for the financial end: the depreciation period for short-term assets like GPUs and CPUs is only 4-6 years, and the increased proportion will directly exacerbate the depreciation expense pressure going forward. In the second quarter of fiscal year 2026, Microsoft's cloud gross margin has already dropped to 67%, showing a downward trend year-over-year. Although the company stated that the cost pressures brought by AI investments are partially offset by operational efficiency optimization, concerns over depreciation leading to profitability suppression are still rising in the market.

Orders and Production Capacity: Structural Concerns in High RPO Growth, Persistent Capacity Constraints

On the order front, Microsoft's Commercial Remaining Performance Obligation (RPO) reached $625 billion in the second quarter of fiscal year 2026, a year-on-year increase of 110%, setting a historical record, but with a clear structural dependency: about 45% comes from contracts related to OpenAI, and after excluding OpenAI, other business RPO grows year-on-year by 28%, still maintaining healthy growth. At the same time, the weighted average duration of RPO extended from 2.0 years to 2.5 years, with an increase in the proportion of long-term contracts, but creating a clear mismatch with the