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The start of 2026 hasn't been kind to Microsoft (NASDAQ: MSFT). Despite delivering strong Q2 FY2026 earnings, the stock is down over 16% year-to-date (YTD).

Microsoft beat on the top and bottom lines, and the company’s cloud computing revenue came in at over $50 billion. But the conventional wisdom is that MSFT stock was priced for perfection. That’s putting the focus on the slight deceleration in the growth of its cloud platform.

There are also concerns over the amount of money Microsoft—like other Magnificent Seven firms—is committing to capital expenditures (CapEx) in the form of AI infrastructure. Those worries may be warranted. AI infrastructure spending can pressure margins/free cash flow even when revenue growth is in the high-30% range. It is one of those things that isn’t a problem until it is.

But here's the angle investors might be missing: Beneath the breathless talk of an AI bubble, Microsoft's channel partners keep hammering one reliable theme—traditional SQL Server migrations and legacy infrastructure shifts to Azure.

While these may not be sexy revenue drivers, they are the steady engine that is keeping Intelligent Cloud humming.

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AI Beat the Numbers, But Guidance Spooked the Street

So what did the earnings report actually say? Microsoft Cloud revenue saw approximately 26% year-over-year growth to the $50 billion mark. Azure was up 39% by itself. That’s still elite performance, but down from prior peaks when stripped of AI capacity effects. 

CapEx surged on AI data center builds, squeezing margins and free cash flow visibility, resulting in management issuing conservative guidance on near-term Azure acceleration.

Traders punished the stock because the headline didn't scream "AI infinity." But the channel partners are singing a different tune. Enterprises are steadily moving SQL-heavy workloads (e.g., SAP, Dynamics, Oracle apps) from on-premise to Azure for cost savings, security patching, and basic modernization.

That's not slowing, and it's the unglamorous base case powering bookings and remaining performance obligation (RPO).

The SQL Server Flywheel Nobody's Hyping

To factor in what this looks like for Microsoft, consider a Fortune 500 firm with a sprawling SQL Server estate. They're not chasing artificial general intelligence (AGI) tomorrow. Instead, they are fleeing hardware refresh cycles, patching headaches, and hybrid sprawl. Migrating to Azure SQL Managed Instance or Synapse requires a multi-year contract, high-visibility project with +80% gross margins.

Channel partners lit up post-earnings: SQL-driven deals remain the bread-and-butter pipeline, often bundling OST, Power BI, and Sentinel for stickiness. These aren't AI moonshots; they're predictable, recurring revenue from customers already deep in the Microsoft stack.

Contrast that with episodic AI GPU ramps—lumpy CapEx, revenue lag, and budget scrutiny. The migrations? Steady as she goes, feeding RPO backlog and cross-sell ramps.

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AI as Turbocharger, Not the Whole Engine

Understanding this is what makes Microsoft a sum-of-its-parts company in the broader technology sector. Investors are pricing MSFT stock like it’s NVIDIA (NASDAQ: NVDA). That is, all AI, all the time.

But AI workloads will layer on top of the migration base that Microsoft has locked down. By moving their SQL estate to Azure, they’re primed for Synapse analytics, Fabric data pools, and Copilot agents running on the same infrastructure. It's the same customers and the same total cost of ownership, just with denser compute.

This mix matters when considering how to value MSFT stock. If the story of Microsoft were all about AI, the concerns over CapEx digestion would carry more weight.

However, Microsoft had $625 billion in RPO—the value of contracted future revenue yet to be recognized—as of its January earnings report. Much of that is migration-tied and delivers resilient, high-margin SaaS atop the cloud layer. Even if the company pauses its AI spend, SQL flywheels and Copilot seats (15M+ paid) keep earnings flowing similar to an annuity.

Why This Redefines the Bull Case

Forget "AI or bust." Microsoft's multiple holds because approximately 70% of Intelligent Cloud growth traces back to boring migrations—high-visibility, low-drama, with AI serving as an accelerant. The post-earnings dip prices in Azure hiccups, but it ignores how this base cushions digestion quarters and funds the AI bridge. 

For patient investors, it's a textbook setup: Headline risk creates entry while fundamentals quietly compound. Watch for channel deal flow and RPO to mix next quarter—they'll tell you if the old-school engine is still revving while AI catches its breath.

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