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Microsoft’s artificial intelligence-fuelled cloud growth fell slightly short of investors’ lofty expectations in the three months to the end of June, sending its shares lower amid intense scrutiny by Wall Street over how the fast-growing technology will bolster Big Tech’s fortunes.
Sales at Microsoft’s closely watched cloud division, its biggest revenue driver that includes its Azure cloud computing platform, rose 19 per cent from a year ago to $28.5bn, just below Wall Street forecasts of $28.7bn.
Azure also posted slightly slower sales growth of 29 per cent, just missing analysts’ forecasts for a jump of between 30 per cent to 31 per cent, compared with a rise of 31 per cent in the previous quarter.
Overall revenue rose 15 per cent from the previous year to $64.7bn, beating expectations for $64.4bn. Net income was up 10 per cent to $22bn, ahead of analysts’ forecasts for $21.8bn.
Shares of the Seattle-based company, which are up about 15 per cent this year, slid 6 per cent in after-hours trading in New York.
Investors have been closely tracking Microsoft’s fortunes as they look to see whether Big Tech can convert bubbling excitement about new cloud-hosted AI software into sales and profits. Its $13bn partnership with OpenAI, the start-up behind ChatGPT, has propelled it into an early lead in the race to win customers for new generative AI services.
AI’s contribution to Azure cloud growth continued to tick up slightly, accounting for 8 percentage points during the past quarter, the company said, up from 7 in the last quarter and 6 in the quarter before that. Ahead of Tuesday’s results, analysts at Deutsche Bank estimated AI would contribute around 8-9 percentage points.
Some analysts have expressed concerns about how long it will take the eye-watering investments being channelled into AI infrastructure, such as data centres, to pay off. Shares in Google-parent Alphabet slipped last week after its AI capital spending blew past what analysts were expecting, weighing on tech stocks more broadly.
Several other Big Tech stocks fell after Microsoft’s earnings report, with Amazon and Meta — which are due to report earnings later this week — both down 3 per cent, and Alphabet shares off 0.6 per cent.
Analysts expect Microsoft’s capital expenditures to surge to more than $50bn in 2025, compared to $32bn in 2023. But the company surpassed that number in its 2024 financial year, according to Tuesday’s report, notching $55.7bn in capital spending during the 12 months.
Kendra Goodenough, director of investor relations, said Microsoft’s AI demand continued to be higher than its available capacity, a headwind that the company previously flagged.
Microsoft has struggled recently with some high-profile problems that have impacted its core software products. An Azure outage earlier on Tuesday came just days after a faulty update to cyber security group CrowdStrike’s software caused millions of Windows devices globally to become unresponsive, which caused crippling problems for airlines, healthcare systems and others.
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