Microsoft stock is flat the day after sinking 10%. Here’s why
Microsoft’s The stock was largely flat on Friday after seeing its biggest daily decline since 2020, falling 10% after reporting earnings on Thursday.
Shares fell even though the company’s second-quarter earnings beat analysts’ revenue expectations.
Like other hyperscalers, Microsoft has invested heavily in building its AI infrastructure. However Meta the same day it reported big AI spending and its shares rose 8%.
Why did Microsoft’s shares fall?
Investors focused on the growth of Microsoft’s cloud computing platform Azure and other cloud services; this growth was 39% below StreetAccount’s consensus of 39.4%. These areas recorded 40% growth in the first quarter of the fiscal year.
Amy Hood, the company’s CFO, said results from its cloud business could have been higher if the company allocated more data center infrastructure to customers rather than prioritizing on-premises needs.
Implied operating margin for the third quarter also fell short; Microsoft claimed approximately $12.6 billion in revenue from its More Personal Computing segment, which includes Windows; this was lower than StreetAccount’s estimate of $13.7 billion.
What analysts say
In a post-earnings note Thursday, Barclays analyst Raimo Lenschow said most investors are focusing solely on Azure growth to assess the health of Microsoft’s business, particularly its performance on artificial intelligence.
“It now looks like the company won’t be able to accelerate Azure any further from here due to the multitude of laws and extra capacity being used for its own high-margin first-party offerings like Co-Pilot and its own AI R&D efforts,” he said.
“We believe investors should understand that rather than bidding up shares this quarter, or even last quarter and over the next few quarters (as capacity constraints are likely to ease), management has made a conscious decision to focus on what’s best for the company over the long term,” Bernstein analyst Mark L. Moerdler said in a note Thursday. he said.
There was still an upward trend in the market for Microsoft shares. Wells Fargo rated the shares as overweight in a note on Thursday, adding that its “early AI leadership and strong established position in a tight market” justified the higher trading price.
