Microsoft’s stock fell by 4% in after-hours trading, despite surpassing expectations for the fiscal second quarter of 2026. The company reported adjusted earnings per share (EPS) of $4.14 on a revenue of $81.3 billion. This EPS exceeded estimates by $0.22, and the revenue represented a 17% increase year-over-year, also surpassing consensus by $1 billion.
Microsoft Cloud revenue experienced a growth of 26% year-over-year, reaching $51.5 billion. The Productivity & Business Processes segment saw a revenue increase to $34.1 billion, marking a 16% year-over-year growth. Intelligent Cloud’s revenue was $32.9 billion, reflecting a 29% year-over-year rise, supported by the “Azure and other cloud services” segment with a 39% sales increase within the same period.
However, the More Personal Computing sector saw a decline, with revenues of $14.3 billion, a 3% drop year-over-year, largely due to decreased Xbox revenue. The company boosted dividends and share repurchases by 32% year-over-year, totalling $12.7 billion.
The 4% after-hours stock dip, despite strong earnings, signals that investor expectations were incredibly high. This is a classic “sell the news” scenario, which we’ve seen before when a stock has had a significant run-up, much like Microsoft did in the final quarter of 2025 when it gained over 15%. Given that the broader Nasdaq 100 is trading near all-time highs, this pullback may be more about market sentiment than company performance.
We see the underlying strength in the cloud business as the most important signal for the coming weeks. Azure’s 39% growth is a critical data point, especially as industry reports from late 2025 showed it continuing to gain market share against competitors like Amazon Web Services. This core growth engine is accelerating, not slowing down, which fundamentally supports a bullish long-term outlook.
The weakness in the Personal Computing division should be viewed as a minor headwind. The 3% decline is largely tied to Xbox, which reflects a broader, cyclical slowdown in the consumer gaming market that we saw data for throughout 2025. This issue appears well-contained and does not affect Microsoft’s high-margin enterprise and cloud businesses.
For traders, this price drop creates an opportunity in the options market where implied volatility is now likely elevated. We believe selling cash-secured puts at strike prices below the current, lower level is an attractive strategy. This allows for collecting higher-than-usual premiums due to the market’s fear, while establishing a potential entry point at an even greater discount if the stock continues to slide.
Alternatively, buying call options with expirations in February or March 2026 could be a prudent way to bet on a rebound. This strategy takes advantage of the lower entry price to position for a potential short-term recovery as the market looks past the initial reaction and refocuses on the impressive 29% growth in the Intelligent Cloud segment. Historically, similar knee-jerk reactions on fundamentally sound companies have often corrected themselves within a few weeks.
