Microsoft’s Cloud and the Oracle of OpenAI

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The market, as it is wont to do, performed a little jig of disapproval recently, causing Microsoft’s share price to dip. A dip, mind you, despite the company reporting numbers that would make most kingdoms envious. The whispers say it’s down to projected operating expenses and a… shall we say, close relationship with OpenAI. A dependence, some might sniff, like a wizard relying on a particularly temperamental familiar. As of this writing, the stock is down slightly over the past year, which, in the grand scheme of things, is merely a blink in the eye of the market gods.

Let us delve into the runes and charts, then, and see if this temporary setback presents an opportunity for the discerning investor. Or, to put it another way, is this a good time to acquire a slice of the digital realm?

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The Azure Ascendancy

Microsoft’s cloud division, Azure, continues to be the engine driving this particular juggernaut. Revenue soared a respectable 39% (38% when adjusted for the whims of currency exchange rates), marking the tenth consecutive quarter of 30%+ growth. Demand for computing power and those new-fangled artificial intelligences, it seems, is not merely a passing fancy. Commercial bookings, those promises of future riches, leaped a rather impressive 230%, largely fueled by substantial commitments from OpenAI and Anthropic. One suspects a great deal of data is changing hands, and not all of it is strictly cat videos.1

Total revenue rose 17% year-over-year to $81.3 billion, and adjusted earnings per share climbed 24% to $4.14. These numbers, as compiled by the diligent scribes at LSEG, exceeded expectations. A good sign, certainly, though one should never mistake exceeding expectations with defying the fundamental laws of economics.

Overall “intelligent cloud” revenue increased by 29% to $32.9 billion. The productivity and business processes segment – home to Microsoft 365 and LinkedIn – saw a 16% rise to $34.1 billion. Within this segment, Microsoft 365 Consumer led the charge with a 29% jump, aided by a recent price adjustment (a polite term for increase) and a 6% increase in subscribers. People, it seems, are willing to pay for digital parchment these days.

Product Q2 Revenue Growth (YOY)
Microsoft 365 Commercial 17%
Microsoft 365 Consumer 29%
LinkedIn 11%
Dynamics 19%

Revenue in the “more personal computing” segment – housing Windows and Xbox – dipped 3% to $14.3 billion. Search and news advertising did reasonably well, rising 10%, while Windows OEM and device revenue eked out a 1% gain. Xbox, however, slipped 5%. Perhaps people are tiring of virtual adventures and returning to the simple pleasures of, say, accounting. One can only hope.

Looking ahead, the company forecasts Q3 revenue between $80.65 billion and $81.75 billion. Analysts were hoping for $81.19 billion, so it’s not a catastrophe. Azure revenue is projected to climb between 37% and 38%. A solid performance, assuming the algorithms don’t decide they’ve had enough.

A Dip Worth Diving Into?

With the stock trading at a forward price-to-earnings ratio of 26 times (based on fiscal 2026 estimates) and 23 times for fiscal 2027, Microsoft appears reasonably priced given its growth trajectory. Azure is the primary growth engine, and its close relationship with OpenAI – a partnership some might describe as symbiotic, others as a slightly uneasy alliance – should sustain this growth for the foreseeable future. Momentum is also building with its Copilot AI assistants, with daily active users up tenfold year-over-year and seats climbing a rather impressive 160%. A truly remarkable achievement, if one ignores the potential for widespread digital assistance-induced indolence.

Given the strength of Azure and Copilot, I’d be inclined to acquire shares on this dip. The reliance on OpenAI does introduce a degree of risk, naturally. But if OpenAI were to falter, a significant portion of the AI market would likely follow suit. A rather compelling argument, wouldn’t you agree? It’s a bit like betting on the only dragon in the kingdom – a risky proposition, certainly, but potentially quite rewarding.

1 The Guild of Alchemists and Venture Capitalists assures us that a significant percentage of data is, in fact, cat videos. They have a vested interest in this claim, naturally.

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2026-01-31 20:33