In an unexpected turn, Microsoft’s shares dropped over 6% Thursday, despite the tech giant announcing its most successful quarterly earnings to date.
The company reported $3.30 earnings per share, surpassing analysts’ projections of $3.10. Additionally, Microsoft posted a net income of $24.7 billion, a substantial increase above expected earnings of $23.2 billion.
But even these strong numbers weren’t enough to calm investor concerns about the company’s future growth in key areas, Forbes reported.
Revenue for Microsoft also hit an impressive $65.6 billion for the three months ending September 30, up from the prior quarter’s record $64.7 billion.
Cloud computing service Azure saw 34% year-over-year growth, beating estimates of 30.7%, a performance that was highlighted as a significant win for the company’s AI-powered initiatives. However, while these numbers exceeded market expectations, projections for the coming months suggested slowing growth in cloud and artificial intelligence segments.
Analysts believe the slide in stock price reflects investor reaction to Microsoft’s tempered outlook for Azure and the intelligent cloud segment, which drives much of its AI-driven operations. For the final quarter of 2024, the company expects Azure’s growth to decelerate to between 31% and 32%, down from the 34% increase reported for this quarter. This slight cooling of growth, though still positive, indicates that the booming AI sector may not sustain its early explosive expansion rates.
The stock price dip also follows a week of closely watched tech earnings, with Microsoft reporting shortly after Google’s quarterly update and ahead of Amazon and Apple’s announcements.
Microsoft recently restructured its reporting to better highlight Azure’s position alongside Amazon Web Services. However, some analysts have suggested that this shift may have added confusion, as the intelligent cloud unit reported a decline despite Azure’s healthy growth.
Beyond earnings, Microsoft’s long-term investments in OpenAI, the AI startup behind ChatGPT, are adding to investor wariness. The anticipated operating losses from OpenAI reflect the high costs of supporting generative AI, which has been a priority but remains financially demanding.
As a result, Thursday’s stock decline had ripple effects across the broader market, with the S&P 500 down about 1.5% and the tech-heavy Nasdaq falling approximately 2.3%.
With Thursday’s losses, Microsoft’s market capitalization saw a staggering drop of around $175 billion, roughly equivalent to Disney’s entire market value. Microsoft’s quarterly earnings report underscored the complexity of the company’s massive AI and cloud ventures, which remain promising yet uncertain in an ever-evolving tech landscape.
Written with the assistance of artificial intelligence.
