Microsoft shares dropped 5% in extended trading on Wednesday after the tech giant reported slower cloud growth in its fiscal second quarter, which ended on December 31. Despite overall revenue and profit increases, the company’s cloud performance fell short of expectations, contributing to the market reaction. Revenue rose 16.7% year over year to $67.3 billion, according to a company statement. Net income reached $38.46 billion, or $5.16 per share, up from $24.11 billion, or $3.23 per share, in the same quarter last year. Adjusted earnings, which exclude the impact of investments in OpenAI, were not specified but were higher than the prior-year period. Microsoft’s gross margin came in at just over 68%, the narrowest it has been in three years, reflecting ongoing cost pressures. Revenue from Azure and other cloud services grew 39% compared to 40% in the previous quarter. Analysts surveyed by StreetAccount and CNBC had expected growth of 39.4% and 38.9%, respectively, meaning the result fell slightly below forecasts. A notable shift in the financials came from other income, which totaled $9.97 billion—up from an other expense of $2.29 billion in the same quarter last year. This change is largely attributed to Microsoft’s restructured stake in OpenAI. Following OpenAI’s announcement in October that its for-profit arm would become a public-benefit corporation, Microsoft’s ownership percentage decreased, resulting in a dilution gain. At the end of the quarter, Microsoft’s commercial remaining performance obligation (RPO)—a key indicator of future revenue from unearned contracts—reached $625 billion, up 110% year over year. Of this, 45% is tied to OpenAI, driven by a $250 billion cloud services commitment from the AI startup. This massive backlog highlights the growing importance of the partnership. However, some analysts have raised concerns about sustainability. Jefferies’ Brent Thill noted on CNBC’s Closing Bell Overtime that while the backlog is strong, the question remains whether OpenAI can meet its financial commitments to Microsoft, Oracle, and other infrastructure providers. Commercial bookings growth, a measure of new customer deals, surged to 230% in the quarter, more than doubling from 112% in the prior quarter, signaling strong momentum in new business. Still, the cloud growth slowdown and margin pressure have tempered investor enthusiasm.