Microsoft’s latest earnings report exceeded Wall Street expectations, but even strong financials couldn't prevent a sharp selloff of over 5%—the tech giant's steepest drop in two years. Despite impressive growth in its core Azure cloud business and an earnings per share of $3.30, beating analysts' forecasts, Microsoft’s revenue outlook for the current quarter dampened investor enthusiasm. The company projected revenue of $68.1 to $69.1 billion, a figure slightly below the $69.83 billion anticipated by analysts.
Azure, Microsoft’s powerhouse in the cloud market, posted a solid 33% revenue increase, underscoring the tech giant’s continued strength in cloud infrastructure. However, CFO Amy Hood offered a more tempered forecast for Q2, citing 31-32% growth in constant currency—a pace that some analysts interpreted as a softening trend. By comparison, Google recently reported 35% growth in its cloud segment, while market leader Amazon was expected to announce its own results soon after Microsoft's call.
Microsoft’s Q1 revenue climbed 16% year-over-year to $65.59 billion, supported by robust performance in its core Azure and Office divisions, which analysts at BofA Global Research praised as “solid.” Yet challenges around data center infrastructure persist, with delays from suppliers affecting Microsoft's ability to meet demand through Q2. CEO Satya Nadella assured investors that the supply and demand imbalance could improve by the fiscal year's second half.
Investors remain watchful of Microsoft’s major AI investments, especially its close partnership with OpenAI. Microsoft has poured nearly $14 billion into the AI startup, which recently reached a valuation of $157 billion. However, this investment is expected to take a toll on Microsoft’s current-period income, with a projected $1.5 billion loss tied to OpenAI. Capital expenditures also rose, as Microsoft boosted spending on property and equipment by 50% from last year, reaching $14.92 billion.
While Microsoft shares are up over 9% for the year, trailing behind the Nasdaq’s 21% gain, the outlook for Q2 reflects both potential and ongoing challenges in meeting cloud infrastructure demand and balancing its ambitious AI investments. This quarter’s results underscore the company’s resilience amid competitive pressures and its readiness to tackle emerging challenges in cloud and AI, setting the stage for what lies ahead in 2024.
