Microsoft's RPO Jumps 110% to $625B as OpenAI Drives 45%
Microsoft's remaining performance obligations rose 110% year over year to $625 billion, with OpenAI accounting for roughly 45% of those commitments. The company’s second-quarter capital expenditures surged 66% to $37.5 billion for AI infrastructure, spurring a more than 6% after-hours share decline over concerns about slower Azure growth.
1. Strong Q2 Fiscal 2026 Performance Despite Share Price Decline
Microsoft reported second-quarter revenue of $81.3 billion, up 17% year-over-year, and operating income of $38.3 billion, a 21% increase. Non-GAAP earnings per share of $4.14 exceeded consensus estimates. Despite the beat, shares fell over 6% in after-hours trading, driven by concerns over slowing Azure growth and record capital expenditures totaling $37.5 billion, which rose 66% year-over-year. Investors weighed the trade-off between near-term profitability and heavy investment in AI infrastructure.
2. Azure Cloud and AI Backlog Fuel Long-Term Growth
Azure and other cloud services revenue climbed 39% in reported terms, contributing to Intelligent Cloud revenue of $32.9 billion. Commercial bookings, a proxy for contracted future revenue, jumped 230% year-over-year to a record $625 billion in remaining performance obligations. Approximately 45% of this backlog is tied to commitments from OpenAI, underscoring Microsoft’s strategic partnership with the AI lab. Analysts highlighted the stickiness of these multi-year contracts as a key driver of long-term cash flow visibility.
3. Balancing Capacity Constraints and Strategic AI Investments
CEO Satya Nadella and CFO Amy Hood acknowledged capacity constraints as the company races to deploy GPUs and CPUs across Azure, internal R&D and first-party AI products like GitHub Copilot and Microsoft 365 Copilot. While infrastructure spending supports enterprise-scale AI training and inference, some analysts cautioned that elevated capex may pressure free cash flow in the near term. Microsoft’s capital investments in data centers and custom AI chips signal its intent to control the full AI stack and reinforce its competitive moat.
4. Diversified Growth Across Productivity and Business Applications
Beyond cloud infrastructure, Microsoft 365 commercial cloud revenue increased 17%, Dynamics 365 rose 19%, and consumer cloud subscriptions grew 29%, reflecting broad adoption of AI-enhanced features across office productivity and business processes. Search and news advertising ex-TAC revenue advanced 10%, and LinkedIn revenue grew 11%. This diversification reduces dependence on any single segment and positions Microsoft to capture expanding total addressable markets in enterprise software and advertising.