NextFin News - In a watershed moment for the technology sector, Microsoft Corporation has reported a record-breaking $625 billion in commercial remaining performance obligations (RPO) as of February 2026, even as its stock experienced its largest one-day selloff since the pandemic. The market reaction followed the release of fiscal second-quarter 2026 earnings, where revenue reached $81.3 billion and earnings per share hit $4.14, surpassing analyst expectations. However, a 66% year-over-year surge in capital expenditure (CapEx) to $37.5 billion and a slight deceleration in Azure cloud growth to 39% triggered a sharp 6% to 10% intraday decline in share price, wiping out approximately $400 billion in market capitalization.
According to Seeking Alpha, the massive $625 billion RPO backlog has an average duration of 2.5 years, with approximately one-fourth expected to be recognized as revenue within the next 12 months. This implies a potential 39% year-over-year growth in recognized revenue, providing a significant safety net against the current market volatility. CEO Satya Nadella and CFO Amy Hood emphasized during the earnings call that demand for artificial intelligence services remains "extraordinarily high," but growth is currently throttled by capacity constraints rather than a lack of interest. The company is essentially in a race to build data centers fast enough to meet the needs of its enterprise clients and its primary partner, OpenAI.
The current investment climate is heavily influenced by the broader geopolitical and domestic policy landscape. U.S. President Trump, inaugurated in January 2025, has consistently advocated for policies that bolster American leadership in critical technologies like AI and semiconductors. This policy direction has encouraged hyperscalers like Microsoft to accelerate their infrastructure build-outs on domestic soil. While the sheer scale of Microsoft’s $150 billion annual CapEx run rate has unsettled some investors, it aligns with a national strategic push to ensure that the backbone of the global AI economy remains firmly rooted in U.S. infrastructure.
From an analytical perspective, the selloff represents a classic "mid-cycle correction" within a structural bull market. The primary cause of investor anxiety is the decoupling of record spending from immediate revenue acceleration. However, a deeper look at the CapEx composition reveals that the majority of these funds are directed toward short-lived, high-demand assets like GPUs and CPUs. Unlike the fiber-optic glut of the late 1990s, current demand for compute power continues to outpace supply. According to ARNnet, Microsoft is also aggressively updating its partner programs in February 2026 to capture this growth, introducing new Copilot licenses and security benefits that are expected to drive higher renewal rates and upsell opportunities among small and medium-sized businesses.
The valuation case for Microsoft has become increasingly compelling following the recent drawdown. Trading at approximately 25.7x forward earnings, Microsoft has effectively become the "cheapest" stock among the Magnificent 7 by P/E ratio. This valuation gap is particularly notable when compared to Meta Platforms, which saw its stock surge 11% in the same week after demonstrating immediate ROI from its AI investments. While Microsoft’s ROI timeline is longer due to its focus on foundational enterprise infrastructure, the $625 billion backlog suggests that the revenue is not a matter of "if," but "when."
Looking forward, the trend toward "AI diffusion" is expected to accelerate as Microsoft resolves its capacity constraints by the summer of 2026. The company’s strategic pivot toward vertical integration, including the deployment of its own custom AI silicon, will likely alleviate margin pressure in the long run. Investors should monitor the stability of the OpenAI cloud backlog, which currently accounts for roughly 45% of Microsoft’s RPO. As the industry moves from the "build phase" to the "monetization phase," Microsoft’s dominant position in the enterprise software stack and its massive infrastructure moat provide a robust bullish case for long-term holders willing to look past the current CapEx-induced volatility.
Explore more exclusive insights at nextfin.ai.