Microsoft Corp. delivered a solid earnings beat for its fiscal second quarter ended December 31, 2025, with adjusted earnings per share of $4.14, surpassing the Wall Street consensus of $3.97 and revenue of $81.27 billion, which exceeded the expected $80.27 billion.

Yet the stock plunged as much as 7% in extended trading on Wednesday, reflecting investor concerns over decelerating Azure cloud growth, heavy AI-related capital spending, and concentration risk in its massive backlog tied to OpenAI commitments.

Total revenue rose 17% year-over-year (15% in constant currency) to $81.3 billion, driven by strong performance across its cloud and productivity segments. Net income on a GAAP basis reached $38.5 billion, or $5.16 per share, up significantly from $24.11 billion ($3.23 per share) in the prior-year quarter, bolstered by a $7.6 billion dilution gain from OpenAI’s restructuring into a public-benefit corporation that reduced Microsoft’s ownership stake.

The Microsoft Cloud segment, encompassing Azure, Office 365, Dynamics 365, and LinkedIn, crossed $50 billion in quarterly revenue for the first time at $51.5 billion, up 26% (24% constant currency). Within that, the Intelligent Cloud group—including Azure and server products—generated $32.9 billion, advancing 29% (28% constant currency) and exceeding StreetAccount’s $32.4 billion estimate.

Azure and other cloud services specifically grew 39% (38% constant currency), a modest slowdown from the prior quarter’s 40% pace and slightly below some analyst forecasts of 39.4%. Guidance for the fiscal third quarter (ending March 2026) called for revenue of $80.65 billion to $81.75 billion, with the midpoint of $81.2 billion aligning closely with the $81.19 billion LSEG consensus. Azure growth was projected at 37% to 38% in constant currency, matching StreetAccount’s 37.1% view.

The implied operating margin for the quarter is around 45.1%, below StreetAccount’s 45.5% consensus, as the company continues pouring resources into AI compute capacity and talent. Chief Financial Officer Amy Hood highlighted the strength of the commercial remaining performance obligation (RPO)—a forward-looking measure of committed but unearned revenue—which ballooned 110% to $625 billion at quarter-end. Approximately 45% of this backlog stems from OpenAI’s $250 billion cloud commitment during the period, with the remaining portion growing 28% and described as “larger than most peers, more diversified than most peers.”

Hood emphasized Microsoft’s role as OpenAI’s “provider of scale,” while analysts like Jefferies’ Brent Thill raised questions about OpenAI’s ability to meet its financial obligations to Microsoft, Oracle, and other partners. Commercial bookings growth accelerated sharply to 230% from 112% in the prior quarter, reflecting robust enterprise demand for AI-infused services.

Microsoft 365 Copilot, the AI-powered add-on for Office productivity tools, now boasts 15 million paid commercial seats—up from prior undisclosed figures—within a base exceeding 450 million paid commercial Microsoft 365 seats, signaling meaningful but still early adoption. Capital expenditures and finance leases surged 66% to $37.5 billion, well above Visible Alpha’s $34.31 billion estimate, as Microsoft added nearly one gigawatt of AI compute capacity in the quarter alone.

Nadella noted customer demand continues to outstrip supply, requiring careful balancing between Azure allocations, first-party AI usage in Copilot and GitHub Copilot, R&D acceleration, and infrastructure refreshes. The Productivity and Business Processes segment, including Office, Dynamics 365, and LinkedIn, delivered $34.12 billion in revenue, up 16% and above StreetAccount’s $33.48 billion consensus. More Personal Computing—covering Windows, Xbox, Surface, and Bing—fell 3% to $14.25 billion, below the $14.38 billion estimate, dragged by a 9.5% decline in gaming revenue and an unspecified impairment charge in the division.

The results cap a period of heavy AI investment, with Microsoft raising prices on commercial Office subscriptions and securing a $30 billion cloud deal from Anthropic alongside capacity commitments. Despite the beat, the stock’s 11% decline over the past three months (versus the S&P 500’s 1% gain) reflects broader concerns that generative AI could disrupt traditional software growth, compounded by the heavy spending required to meet demand.

Now, Microsoft navigates this AI-driven inflection point, with the focus shifting to execution: converting its massive backlog into sustained revenue, managing capex without eroding margins, and proving Copilot’s monetization potential.

The U.S. trade deficit widened sharply in November, highlighting the uneven and often contradictory effects of President Donald Trump’s tariff-driven trade strategy as it continues to work its way through the economy.

According to data released Thursday by the Census Bureau, the overall trade shortfall jumped to $56.8 billion in November, a 94.6% increase from October. The surge marked a dramatic reversal from the previous month, when the deficit had fallen to its lowest level since early 2009, raising fresh questions about the durability of recent improvements in America’s external balance.

A substantial portion of the deterioration was linked to trade with Europe. Roughly one-third of the month-on-month increase came from the European Union, where the U.S. goods deficit widened by $8.2 billion. That rise suggests that transatlantic trade flows remain robust despite the imposition of tariffs and months of tense negotiations between Washington and Brussels.

By contrast, the deficit with China narrowed modestly, declining by about $1 billion to $13.9 billion. The smaller gap with Beijing reflects a combination of factors, including lingering tariff barriers, weaker Chinese domestic demand, and ongoing efforts by U.S. companies to diversify supply chains away from China toward other parts of Asia and Europe.

While tariffs have clearly dampened some bilateral trade, they have not eliminated America’s overall imbalance, instead redistributing it across trading partners.

On a cumulative basis, the U.S. trade deficit through November reached $839.5 billion, around 4% higher than the same period in 2024. The year-over-year increase underscores how difficult it has been to achieve a sustained reduction in the deficit, even as trade policy has become more interventionist.

The November data sit uneasily with the administration’s stated objectives. When Trump announced so-called reciprocal tariffs in April 2025, the White House pointed to bilateral trade deficits as evidence of unfair trading relationships and used those imbalances as a benchmark for determining duty levels. The logic was straightforward: higher tariffs would curb imports, encourage domestic production, and ultimately shrink the deficit.

In practice, the outcome has been far more complex. While tariffs have altered sourcing decisions and raised costs for foreign suppliers, they have also increased input prices for U.S. manufacturers and consumers, in some cases shifting demand rather than suppressing it. Strong domestic consumption, in particular, continues to underpin import growth, limiting the impact of tariffs on the headline deficit.

The widening gap with the EU illustrates this dynamic. Europe exports a large volume of high-value goods to the United States, including machinery, pharmaceuticals, vehicles, and industrial equipment, categories where American demand is relatively resilient. Even with higher tariffs, these imports have remained competitive, contributing to the November surge in the deficit.

Recognizing the economic and political costs of prolonged trade confrontation, the White House softened its stance as the year progressed. In August, the U.S. and the EU reached a framework agreement that set tariffs at 15% on most European goods and aimed to stabilize relations after months of uncertainty. The deal reduced the risk of further escalation and provided businesses with greater clarity, though it stopped short of fundamentally reshaping trade balances.

Economists have noted that trade deficits are shaped by forces that tariffs alone cannot easily offset. Currency movements, relative growth rates, fiscal policy, and consumer behavior all play critical roles. A large fiscal deficit and strong consumer spending tend to pull in imports, widening the trade gap regardless of tariff levels. At the same time, boosting exports often requires sustained investment in competitiveness, infrastructure, and productivity, not just barriers to imports.

The November figures also highlight a broader tension in U.S. trade policy: efforts to rebalance trade through tariffs can conflict with the realities of a consumption-driven economy. As long as U.S. households and businesses continue to spend at a healthy pace, imports are likely to remain elevated, and deficits may fluctuate rather than steadily decline.

Against this backdrop, the latest data suggest that while Trump’s tariffs have reshaped trade patterns and bargaining dynamics, they have not delivered a clear or lasting reduction in the overall deficit. Instead, they have produced sharp month-to-month swings and shifted imbalances among trading partners, leaving the longer-term challenge of external rebalancing unresolved.

Tesla delivered a mixed set of fourth-quarter results that once again captured the tension at the heart of the company, which has recorded a downward spiral of revenue in the past several quarters.

The EV giant’s latest earnings offered investors a familiar contradiction: short-term financial outperformance paired with deeper signs of strain in the company’s core business, even as Elon Musk presses ahead with a costly and uncertain pivot toward artificial intelligence, autonomy, and robotics.

Tesla reported better-than-expected fourth-quarter results after the bell on Wednesday, lifting its stock about 2% in extended trading. Adjusted earnings came in at 50 cents per share, ahead of the 45 cents expected by analysts surveyed by LSEG, while revenue of $24.90 billion narrowly topped forecasts. But the relief rally masked a more consequential development. Tesla’s full-year revenue fell 3% to $94.8 billion from $97.7 billion in 2024, marking the first annual revenue decline in the company’s history.

That milestone underscores how sharply Tesla’s growth story has changed. Once defined by rapid expansion and soaring deliveries, the company is now grappling with slowing sales, intensifying competition, and a lineup that has aged as rivals push newer, cheaper models into the market. Nowhere is that pressure more visible than in China, where BYD and other domestic manufacturers have steadily eroded Tesla’s market share through aggressive pricing and frequent product refreshes.

In the fourth quarter alone, Tesla’s revenue slipped 3% from a year earlier, while automotive revenue fell a steeper 11% to $17.7 billion, down from $19.8 billion. Earlier this month, the company disclosed that vehicle deliveries plunged 16% in the quarter and declined 8.6% for the full year.

Although Tesla does not precisely define deliveries in its shareholder communications, the figure is widely treated as the closest proxy for sales, and the trend highlights the depth of the slowdown.

Management attributed the annual revenue decline partly to lower vehicle deliveries and reduced regulatory credit revenue, a reminder that Tesla has long relied on those credits to bolster earnings. The fading contribution from credits comes at a time when price cuts, used to defend market share, have already weighed on margins.

Profitability pressures were stark. Net income in the fourth quarter fell 61% to $840 million, or 24 cents per share, from $2.1 billion, or 60 cents per share, a year earlier. Operating expenses jumped 39%, driven largely by spending on artificial intelligence and other research and development projects. Those investments sit at the heart of Musk’s long-term vision, but they are also dragging on near-term earnings at a moment when revenue growth has stalled.

Tesla’s challenges in 2025 have not been purely commercial. Some of the downturn has been linked to Musk’s political posture, including his close work with President Donald Trump and a series of incendiary public statements and endorsements of far-right figures in Europe. That rhetoric triggered a consumer backlash in several markets, particularly among buyers who once associated Tesla with environmentalism and progressive values. The backlash persisted through the year, compounding the impact of competition and macroeconomic pressures.

During the earnings call, Musk acknowledged another structural issue: Tesla’s aging product lineup. He said the company would end production of the Model S and Model X vehicles first introduced in 2012 and 2015, respectively. While the move streamlines operations, it also highlights how heavily Tesla has leaned on incremental updates to a small number of models while competitors have cycled through new designs more rapidly.

Yet Musk made clear that he wants investors to focus less on cars and more on what he describes as Tesla’s future as an AI company.

“We’re really moving into a future that is based on autonomy,” he said, warning that the shift would require heavy capital spending.

Chief Financial Officer Vaibhav Taneja said Tesla expects about $20 billion in capital expenditures this year, spanning new factories, AI computing infrastructure, and the development of Optimus humanoid robots.

That strategic pivot is already reshaping Tesla’s operations. Musk said the Fremont, California, factory lines that once produced the Model S and X will be converted to manufacture Optimus robots. Tesla plans to unveil the third generation of Optimus later this quarter, describing it as its first design intended for mass production. The company has pitched Optimus as a bipedal, intelligent robot capable of tasks ranging from factory work to childcare, a vision that, if realized, would open markets far beyond automobiles.

Autonomy remains the other pillar of Tesla’s long-term bet. In 2025, the company launched a Robotaxi-branded ride-hailing app and began operating a pilot service in Austin, Texas. Last week, executives said they had removed human safety supervisors from a handful of vehicles in that fleet to conduct fully driverless passenger rides. Tesla said it plans to expand robotaxi coverage to seven additional U.S. cities in the first half of this year, including Dallas, Houston, Phoenix, Miami, Orlando, Tampa, and Las Vegas.

The company has also begun tooling ahead of production of its Cybercab, a two-seat, purpose-built autonomous vehicle designed without a steering wheel or pedals. The Cybercab is intended to be the backbone of Tesla’s robotaxi ambitions, but regulatory approval and large-scale deployment remain unresolved. Musk has spent nearly a decade forecasting imminent breakthroughs in Full Self-Driving, and investors are increasingly pressing for firm timelines rather than aspirational targets.

While the automotive business struggles, other segments are providing some support. Revenue from Tesla’s energy generation and storage business rose 25% to $3.84 billion, driven by strong demand for grid-scale batteries used to stabilize power networks and support renewable energy. The services and other segments also grew, with revenue up 18% to $3.37 billion. Though smaller than the auto unit, these businesses offer diversification and exposure to longer-term infrastructure trends.

One of the most closely watched disclosures was Tesla’s confirmation that it agreed on Jan. 16 to invest about $2 billion in Musk’s artificial intelligence startup, xAI. The investment followed xAI’s recent $20 billion fundraising round, which exceeded its initial target and included Nvidia and Cisco as participants. Tesla said the deal, along with a broader partnership, is intended to enhance its ability to develop and deploy AI products and services “into the physical world at scale.”

The xAI investment is believed to strengthen Tesla’s autonomy and robotics roadmap by tightening integration with a dedicated AI research company. Also, it deepens concerns about capital allocation and governance, further entangling Tesla’s finances with Musk’s wider network of ventures at a time when its core business is under strain.

In essence, Tesla’s latest results capture a company at a crossroads. It highlights that the era of easy growth driven by electric vehicle adoption alone appears to be over. In its place, Musk is asking investors to accept slowing sales, declining profits, and rising spending in exchange for a future built on artificial intelligence, robotaxis, and humanoid robots.