Microsoft Shares Slip On "soft" Azure Revenue. Is This A Buying Opportunity In The Stock?

Microsoft (NASDAQ: MSFT) shares fell after revenue from its Azure cloud computing platform came in at the low end of its prior guidance, although the unit continues to be company's biggest growth driver. The decline sent the stock into slightly negative territory for the year, as of this writing.

Let's dig into the company's results to see if this is a good opportunity to buy the dip.

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Azure in focus

Azure was once again the primary focus when Microsoft reported its earnings results. The unit grew its revenue by 31% in the fiscal second quarter, which was a deceleration from Q1 when Azure revenue rose 33%. It was also at the low end of its prior guidance for Azure fiscal Q2 revenue growth of between 31% and 32%.

The company said its AI business surpassed a $13 billion annual revenue run rate, as its Azure AI revenue surged 157% year over year. It added that Azure OpenAI applications doubled year over year, which helped lead to significant adoption for its SQL Hyperscale and Cosmos DB solutions. OpenAI, meanwhile, has decided to make new large Azure commitments.

Overall "intelligent cloud" revenue, where Azure sits, jumped 19% year over year to $25.5 billion.

Looking ahead, the company forecast Azure revenue to once again grow by 31% to 32% in fiscal Q3. However, it had previously talked about Azure growth accelerating in its fiscal second half as more capacity came on from prior capital expenditures (capex) spending. The company blamed challenges in its non-AI Azure business, while noting that it continues to be in a pretty capacity-constrained environment.

Turning to Microsoft's other segments, productivity and business processes, home to Microsoft 365 and LinkedIn, saw revenue climb 14% year over year to $29.4 billion. Dynamics products and cloud services revenue as well as Office 365 commercial led the way, with both growing by 15%. LinkedIn revenue rose by 9%, and Office 365 consumer revenue increased 8%.

Microsoft said that it is seeing accelerated customer adoption of its Microsoft 365 Copilot across deal sizes. It added that customers that purchased Copilot during its first quarter of availability have expanded their seats by more than 10 times over the past 18 months in aggregate.

Revenue in its "more personal computing" segment, where Windows and Xbox reside, was flattish year over year at $14.7 billion. Its search and news advertising business, which is also part of the segment, was strong with revenue growth of 21%.

Microsoft's total revenue rose by 12% year over year to $69.6 billion, with earnings per share (EPS) rising 10% to $3.23. The results easily surpassed analyst consensus estimates calling for $68.8 billion in revenue and $3.11 in EPS, as compiled by LSEG.

For its fiscal Q3, the company expects its intelligent cloud segment to grow between 19% and 20% in constant currency to $25.9 billion-$26.2 billion, while its productivity and business processes segment revenue is projected to rise by between 11% and 12% in constant currency to $29.4 billion-$29.7 billion. More personal computing segment revenue is forecast to be between $12.4 billion and $12.8 billion, which would be down from $15.6 billion a year ago.

Should investors buy the dip?

While Azure revenue and guidance may have disappointed investors, it is still the strongest part of Microsoft's business. The AI portion of the business continues to be very robust, albeit still capacity constrained. Meanwhile, the company is bullish that as computing costs come down, it will lead to more consumption. It noted that each cycle it has seen a 10 times improvement due to software optimizations on inference.

Meanwhile, the company saw revenue start to accelerate in its Office 365 commercial business as customers began to more broadly adopt its AI Copilot. With early customers continuing to add seats, this is a good sign for the business moving forward. At $30 per enterprise user per month, this is a nice growth opportunity.

The stock now trades at a forward price-to-earnings (P/E) ratio of under 28 based on fiscal 2026 analyst estimates. That's a fair valuation for a software and cloud computing company with good recurring revenue streams and a lot of AI opportunities in front of it.

MSFT PE Ratio (Forward 1y) data by YCharts

Overall, I think Microsoft's results were generally solid. They did not live up to some high Azure expectations, but this is a company that is helping lead the way with AI. As such, I think long-term-focused investors can use the dip in the stock price to buy or add to positions for this enduring technology company.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.