During earnings call with analysts after the market closed on Wednesday, chairman and CEO Satya Nadella and chief financial officer Amy Hood were forced to fear investors over slowing revenue growth for the Azure platform amid rising capital spending—both signs that the company is struggling to keep up with AI demand. Those two numbers combined raise questions about whether Microsoft will be able to build computing capacity as quickly as planned, and whether that issue will further limit Azure’s growth. In fact, investors are concerned that they may be seeing the first blush of a yellow flag.

“One of the main issues weighing on investors is capex growing faster than we expected, and maybe Azure slower than we expected,” said Keith Weiss, head of US software research at Morgan Stanleyduring the call. “That basically comes down to a concern with (return on investment), with this capex spending over time.”

on level-set: Microsoft spent $34.9 billion in capital expenditures on first quarter in fiscal 2026 alone, with roughly half dedicated to assets including GPUs and CPUs, which are the chips it uses in PCs, servers, and Azure data centers. on Q2the capex is approx $37.5 billionbringing the first half total to $72.4 billion, marking significant infrastructure spending. In the first quarter, Hood told investors that the company saw growing demand and an increase in the RPO balance that meant spending on chips would increase.

Meanwhile, Azure growth flat, fall from 40% in the first quarter to 39% in the second. “We continue to see strong demand across workloads, customer segments and geographic regions, and demand continues to outpace available supply,” Hood said during the call.

The latest revenue numbers have investors wondering about capacity constraints, and ROI questions.

Hood reiterated the idea that investors should make a direct correlation between capital expenditures and Azure’s revenue numbers. “Sometimes I think maybe it’s better to think about the Azure guidance that we provide as an allocated capacity guidance in terms of what we can provide in Azure revenue,” Hood told Weiss in response to his question.

“The first thing we’re doing is solving for increased use and sales and the fast pace of M365 Copilot, as well as GitHub Copilot,” he said. Then, Microsoft invests in R&D and product innovation, which are both long-term investments. “You end up with the rest going into servicing Azure capacity that continues to grow in terms of demand,” Hood said.

If Microsoft had allocated all new GPUs from the first and second quarters exclusively to Azure, Hood said, Azure’s growth would have been greater than the 39% reported by Microsoft.

Nadella emphasized Hood’s point, noting that investors should evaluate the performance of the entire AI business. He said that investors should “clearly” consider Azure, but should not forget about Microsoft 365 Copilot, Github Copilot, Dragon Copilot, and Security Copilot, which all include AI.

“Acquiring an Azure customer is very important for us, but so is acquiring an M365, or a GitHub or a Dragon Copilot (customer),” Nadella said. He said that the spending calculation also acts as an R&D-like investment.

“You have to think about computation as well as R&D, and that’s the second element of it,” Nadella said. “And so we use everything, obviously, to optimize for the long term.”

However, investors are likely to remain concerned that ongoing capacity constraints will prevent the technology giant from converting its record RPO backlog, reported in filings in the form of residual performance obligations (RPO), into revenue growth as fast as Wall Street expects. In addition, investors will look to the next quarter for signs that infrastructure spending is justified by revenue growth.

Despite investor concerns and the stock’s after-hours drop, most of the news from the latest earnings report was positive. Microsoft reported second-quarter revenue of $81.3 billion, up 17% from $69.6 billion a year earlier, exceeding the company’s guidance of $79.5 billion to $80.6 billion. Operating income grew 21% to $38.3 billion from $31.7 billion, while diluted earnings per share rose 24% to $4.14 from $3.35. In addition, the cloud business cracked $50 billion in quarterly revenue for the first time, hitting $51.5 billion, growth of 26% year-on-year.

RPO increased 110% year over year to $625 billion, driven in part by the $250 billion commitment from OpenAI announced in October. Hood said investors shouldn’t worry about exposure to one of Microsoft’s major partners, pointing out that roughly $344 billion in RPO comes from a diverse set of other customers. RPO from that set of customers grew 28% year over year, which Hood said was greater than most of Microsoft’s peers.

Some of that “55% or roughly $350 billion is related to the breadth of our portfolio, breadth of customers, of solutions, of Azure, of industries, of geographies,” Hood said. “Frankly, I think we have high confidence in it.”