TLDR
- Microsoft’s Q4 earnings beat estimates, but AI and cloud growth fell short of expectations
- Azure cloud computing growth slowed to 29%, below the projected 31%
- Microsoft stock dropped around 7% after hours following the earnings report
- The company’s AI-related capital expenditure increased significantly
- Other big tech stocks like Alphabet and Meta also fell after Microsoft’s results
Microsoft reported strong overall earnings for its fiscal fourth quarter, but growth in key artificial intelligence and cloud segments fell short of expectations, causing the company’s stock to drop sharply in after-hours trading.
For the quarter ending June 30, 2024, Microsoft posted earnings per share of $2.95 on revenue of $64.7 billion. This surpassed Wall Street estimates of $2.94 earnings per share and $64.5 billion in revenue. Compared to the same period last year, earnings per share increased 10% while revenue grew 15%.
Despite beating overall projections, Microsoft’s crucial cloud and AI businesses underperformed. The company’s Azure cloud computing unit saw growth of 29%, below analyst expectations of 31% and slower than the previous quarter’s 31% growth. Revenue for Microsoft’s Intelligent Cloud division, which includes Azure, came in at $28.5 billion, missing estimates of $28.7 billion.
The disappointing AI and cloud results sent Microsoft’s stock price down about 7% in after-hours trading. If maintained, this would mark Microsoft’s worst single-day stock performance since October 2022. The after-hours price of below $400 per share would be the stock’s lowest level since early May 2024.
Microsoft’s earnings report comes during a tense period for big tech investors focused on AI progress. Last week, Google parent Alphabet saw its stock fall 5% despite beating earnings estimates, as the market reacted to a lack of specific details on AI revenue impact.
The tech giant has been investing heavily in AI capabilities. Microsoft reported capital expenditures of $19 billion for the quarter, a 78% increase from the previous year and 36% higher than the last quarter. Much of this spending is attributed to AI-related initiatives.
Microsoft said AI services contributed 8 percentage points to its Azure cloud revenue growth. However, the market reaction suggests investors were hoping for an even larger AI boost.
The earnings announcement also impacted other major tech stocks. Shares of Meta, Amazon, and Apple all dipped in after-hours trading following Microsoft’s report. These companies are set to announce their own earnings later this week.
Despite the negative market reaction, Microsoft’s financials remain strong overall. The quarter was Microsoft’s highest-grossing ever, with revenue of $64.7 billion surpassing the previous record of $62.02 billion set in December 2023. For the full 2024 fiscal year, Microsoft reported net income of $88.1 billion on revenue of $245.1 billion, both significant increases from the previous year’s results.
Microsoft CEO Satya Nadella has positioned the company as a leader in the AI space, particularly through its partnership and investment in OpenAI. The company has integrated AI capabilities across its product lines, from its Azure cloud services to its Office productivity suite.
Looking ahead, analysts will be closely watching to see if Microsoft can accelerate its AI-related growth to meet high market expectations. The company faces increasing competition in the cloud and AI space from rivals like Amazon Web Services and Google Cloud.
Microsoft’s next earning report will be particularly significant as investors look for signs that the massive investments in AI are translating into substantial revenue growth. In the meantime, upcoming earnings reports from other tech giants like Meta, Amazon, and Apple may provide further insight into the state of AI adoption and monetization across the industry.
