Microsoft Azure growth slows, Gabelli says market finds it unexciting

Microsoft’s Azure cloud revenue rose 39% year‑over‑year in the latest quarter, yet the growth slowdown helped trigger a 12% plunge in Microsoft’s stock—the steepest decline since March 2020, and prompted Gabelli analyst John Belton to declare that “the market has decided Microsoft Azure is not a very exciting business”【1】.

Slowing Azure growth fuels market backlash

Microsoft reported cloud revenue of $50 bn, the first time the segment topped that mark, but analysts focused on Azure’s 39% growth—just under the 38.4% consensus forecast and down from 40% in the prior quarter【1】. The shortfall was enough to outweigh the company’s overall earnings beat and drove the sharp share decline. UBS noted that scarce GPU capacity was being diverted from Azure to Microsoft’s own AI products, a factor that “fell a bit short” and amplified the negative sentiment【1】.

Capital intensity and OpenAI dependence raise doubts

The earnings call revealed a $37.5 bn capital expenditure for the quarter, a 66% rise year‑over‑year, yet investors questioned whether this spending could translate into faster Azure growth【4】. Microsoft’s cloud backlog now stands at $625 bn, with OpenAI accounting for roughly 45% of that amount, highlighting a heavy reliance on a single partner for future revenue【4】. Critics, including Gabelli’s Ryuta Makino, warned that without a re‑acceleration in Azure growth, Microsoft’s shares could continue to underperform【1】.

Competitive pressure from Google Cloud and AWS

While Azure’s growth decelerated, rivals are gaining traction. Google Cloud posted growth between 34% and 39%, narrowing the gap with Azure while maintaining higher margins, and Amazon’s AWS showed a 21% increase, emphasizing free‑cash‑flow generation over aggressive expansion【3】【4】. These alternatives give enterprise customers leverage to negotiate better terms or switch providers, further challenging Azure’s market perception.

What to watch

• Q2 2026 earnings (scheduled for early August) for any revision to Azure growth guidance.
• CapEx rollout: whether Microsoft can accelerate data‑center build‑out to relieve compute constraints.
• OpenAI’s contribution: any shift in the proportion of the cloud backlog tied to OpenAI services.

The market’s reaction underscores that even record‑size cloud revenues cannot mask a slowdown in growth, especially when investors demand rapid returns on massive AI‑related spending. Whether Azure can reignite its growth trajectory or remain a “boring” segment will hinge on the company’s ability to balance compute allocation, cap‑ex efficiency, and diversification beyond OpenAI.