Microsoft’s stock closes worst quarter since 2008 financial crisis

Microsoft Wall Street’s worst quarter since the 2008 financial crisis ended as investors lost hope in the software giant’s artificial intelligence push.

The stock lost 23 percent of its value in the first quarter; That’s a steeper decline than other tech peers or the Nasdaq, which fell 7 percent during that period. Microsoft rebounded slightly on Tuesday alongside a broader market recovery, sending its shares up 3.3%, the biggest gain since July.

While Microsoft maintains its dominance through its workplace productivity software and Windows operating system, the company faces dual pressures to grow efficiently in AI while building out its cloud AI infrastructure to support growing demand.

Oil prices are rising due to the war in Iran, potentially increasing the costs associated with building and operating data centers. On the product front, Microsoft’s AI assistant Copilot has yet to gain much traction as users flock to competitive services. GoogleOpenAI and Anthropic.

“Redmond is in dire straits,” Ben Reitzes, an analyst at Melius Research, wrote in a March 23 note referring to Microsoft headquarters. Reitzes, who has a hold rating on the stock, said the company needed to use valuable capacity in its Azure cloud to fix Copilot, but had no choice “as it was necessary to maintain momentum in Copilot’s most profitable and largest segment.”

Microsoft declined to comment.

Meanwhile, software stocks are taking a hit as part of the AI-inspired “SaaSpocalypse,” highlighting names like . Adobe, Atlassian And ServiceNow There has been a decline of more than 30 percent this year.

“Most traditional SaaS is dying/possibly experiencing fatal disruption,” SaaStr founder Jason Lemkin wrote in a post this week. XUsing the acronym software as a service. One blog postEarnings multiples for software lag the S&P 500, he noted.

Microsoft’s rate hasn’t been this low since the fourth quarter of 2022, when OpenAI introduced ChatGPT, according to Capital IQ data.

Gil Luria, an analyst at DA Davidson, told CNBC that the sale was not justified and recommended buying shares. In the latest quarter, Microsoft reported revenue growth of almost 17%, accelerating from the previous year.

“The deterioration in Microsoft’s underlying performance and Microsoft’s stock performance and Microsoft’s valuation is the largest deterioration in decades,” Luria said. He said he expects the company’s earnings growth to outpace the overall market this year.

“In all of enterprise software, there is no stickier product than Microsoft Windows and Office,” he said.

Microsoft is trying to build a larger revenue base from its productivity software with the Microsoft 365 Copilot AI add-on, but so far only 3% of commercial Office customers have a license for the software. Luria said he has access to 365 Copilot but is not a fan. More importantly, he said, Microsoft has pricing power on Office subscriptions. The company announced plans to increase its prices in December.

As Copilot struggles to win over users, Microsoft said two weeks ago that Mustafa Süleyman, the former co-founder of DeepMind, the AI ​​lab that runs Copilot development for consumers, would focus on building AI models. Microsoft took over the old role explode Executive Jacob Andreou leads the Copilot experience for consumers and business customers.

Former Jane Street trader Agustin Lebron said: “Of course it looks like a demotion at best.” wrote to x. The change follows the departures of prominent executives, including gaming chief Phil Spencer and Rajesh Jha, Microsoft’s top productivity leader, who is retiring.

Microsoft is still getting healthy growth from Azure; It ranks second after Azure Amazon Web Services in cloud infrastructure. The division’s revenue rose 39% in the December quarter. Finance chief Amy Hood said in January that growth could be in the 40s if the company allocated all its AI chips to Azure instead of giving them to teams running services like Microsoft 365 Copilot.

Azure leverages the massive pipeline of OpenAI and Anthropic. Microsoft’s remaining business performance liabilities on Azure more than doubled from a year earlier in the December quarter to $625 billion.

It’s a reminder that among tech hyperscalers, Microsoft is seen as one of the first movers in the generative AI space due to its investment in OpenAI in 2019 and its strategic partnership with the startup. However, companies no longer have specific regulations on cloud infrastructure and are now competing in many areas.

In February, OpenAI announced a service called Frontier, which the company said “helps enterprises build, deploy and manage AI agents that can do real work.”

Microsoft CEO Satya Nadella is promoting the company’s artificial intelligence developments on social media with a bold statement.

“There is very intense competition, but it is not as zero-sum as some people claim.” he said In January.

Aaron Foresman, managing director of equity research for Microsoft investor Crawford Investment Counsel, said Nadella’s continued presence is crucial to the company he has led since replacing Steve Ballmer in 2014.

“We have a lot of confidence and trust in Satya,” Foresman said.

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