Microsoft Stock Dips as Cloud Growth Falls Short of Q4 Estimates; Analysts Provide Insights

Microsoft’s shares experienced a decline following its fourth-quarter earnings report, which revealed that cloud revenue growth did not meet Wall Street’s expectations. Despite the tech giant increasing its investment expenditures to drive growth, the results fell short.

On Wednesday, Microsoft Corporation saw a drop of approximately 1.7% after the market opened. The company reported earnings of $2.95 per share on revenue of $64.7 billion. Analysts had predicted an earnings per share (EPS) of $2.94 on revenue of $64.38 billion.

Azure, Microsoft’s cloud computing segment, saw a growth rate of 29%, which was below the anticipated 30.2%, and represented a slowdown from the 31% growth reported in the third quarter. Azure’s performance is often viewed as a key indicator of demand for artificial intelligence, with AI-related growth contributing about 8% to its overall growth, up from 7% in the previous quarter.

The slowing growth in the cloud segment is occurring even as Microsoft significantly increased its investments, with capital expenditures rising to $19 billion in the fourth quarter, compared to $14 billion in the third quarter and nearly double the $10.7 billion recorded during the same quarter last year.

Commercial bookings saw a substantial year-over-year increase of 17%, surpassing expectations. Despite the revenue miss, analysts from Jefferies maintained a “Top Pick” rating on Microsoft’s stock, emphasizing the company’s strong position in the evolving AI market. They noted that Microsoft anticipates Azure’s growth to accelerate in the second half of the year as increased capacity is brought online to meet AI demand.

Guggenheim analysts also highlighted that Microsoft’s forecast of a reacceleration in Azure growth over the next three quarters helped ease investor concerns. However, they cautioned that investors should critically evaluate the company’s ability to forecast long-term growth, especially given recent forecasting difficulties.

In its productivity and business processes segment, revenue increased by 11% to $20.3 billion, while personal computing revenue rose by 3% to $11 billion, with a 7% increase in Windows revenue. Analysts at RBC indicated that shares fell in after-hours trading due to the Intelligent Cloud segment’s revenue falling short of consensus, with Azure’s growth slowing compared to expectations.

Citi’s analysts remarked that the fourth-quarter results “offered something for everyone.” They pointed out that the smaller-than-expected earnings beat and soft guidance could lead to slight negative revisions in near-term estimates, impacting share prices temporarily. However, they expressed confidence that any weakness would be short-lived due to leading indicators suggesting an acceleration in Azure growth in the second half of the year. As a result, Citi adjusted its price target for Microsoft stock from $520 to $500 to reflect short-term challenges.

Yasin Ebrahim contributed to this report.