Microsoft shares plunged roughly 12% in a single session—the largest one‐day drop since early 2020—after releasing Q2 FY2026 results. While the company beat consensus on both revenue and earnings per share, investors were disappointed that Azure and Intelligent Cloud revenue growth slowed to approximately 38–39%, barely meeting Wall Street forecasts. At the same time, capital expenditures surged 66% year-over-year to $37.5 billion as the company ramped up spending on AI infrastructure.

Despite the selloff, 40 of the 44 covering analysts rate Microsoft a Buy or Strong Buy, with a median price target implying nearly 47% upside over the next 12 months. Key drivers cited include sustained double-digit growth in Intelligent Cloud, a 228% year-over-year increase in commercial bookings, and a backlog of $625 billion in commercial remaining performance obligations (RPO). One-quarter of that RPO is expected to be recognized as revenue in the coming 12 months, implying 39% year-over-year revenue growth from existing contracts alone.

Investors have grown uneasy as Microsoft’s AI capital expenditures now outpace both revenue and profit growth. Nearly half of the company’s RPO is tied to its partnership with OpenAI—exposure that analysts warn carries execution risk given OpenAI’s projected multi-billion dollar losses next year. Management acknowledges current GPU supply constraints in Azure, noting that had all recently deployed units been fully allocated to its cloud business, growth metrics would have exceeded 40%.

After tumbling more than 20% from its all-time high, Microsoft stock sits at valuation multiples below most of its Magnificent 7 peers, prompting some analysts to upgrade their ratings. Historical patterns suggest that large tech names often rebound within 12 months following similar corrections. Recovery in 2026 will likely hinge on alleviating capacity bottlenecks in Azure, delivering an acceleration in cloud growth, and demonstrating return on hefty AI investments.