Microsoft Shares Drop 7% as Cloud Stumble Overshadows Strong Q4 Revenue

Microsoft’s Q4 Earnings: Cloud Slowdown Overshadows Strong Revenue

Microsoft reported its fiscal fourth-quarter earnings, revealing a mixed picture that has sent ripples through the market. Despite beating overall revenue and earnings expectations, the tech giant’s shares tumbled 7% in extended trading, primarily due to disappointing cloud results.

In after hours trading at 20:47 GMT, Microsoft (MSFT) is trading $399.50, down $23.42 or -5.54%.

Earnings Highlights

Microsoft’s total revenue for the quarter ending June 30 increased by 15% year-over-year, reaching $64.73 billion, surpassing the expected $64.39 billion. Earnings per share stood at $2.95, outperforming the anticipated $2.93. Net income rose to $22.04 billion from $20.08 billion in the same quarter last year.

Cloud Performance Concerns

The Intelligent Cloud segment, which includes Azure, Windows Server, Nuance, and GitHub, generated $28.52 billion in revenue, falling short of the $28.68 billion analyst consensus. Azure and other cloud services grew by 29%, below the expected 31% growth rate. This underperformance in the cloud sector, particularly in Azure, has become a focal point for investors.

Segment Breakdown

The Productivity and Business Processes unit, encompassing Office software and LinkedIn, saw an 11% increase in revenue to $20.32 billion. The More Personal Computing unit, which includes Windows, gaming, and search advertising, contributed $15.90 billion, up 14% and exceeding expectations.

AI Integration and Market Competition

Microsoft reported that 8 percentage points of Azure’s 29% growth came from AI services, highlighting the company’s push into artificial intelligence. This comes as Microsoft competes with Amazon Web Services and Google for AI workloads, with all three companies heavily investing in AI capabilities.

PC Market Recovery

The results benefited from a stabilizing PC market, with Windows license sales to device makers increasing by 4%. Gartner estimated a 1.9% growth in PC shipments during the fiscal fourth quarter, an improvement from the previous quarter’s 0.9% growth.

Market Forecast

Despite the overall strong performance, the cloud slowdown has cast a shadow over Microsoft’s short-term outlook. The market reaction suggests a bearish sentiment in the immediate future, particularly concerning the cloud segment. Investors will likely scrutinize the company’s AI strategy and its ability to accelerate cloud growth in the coming quarters. The tech sector may experience some volatility as it digests these results and their implications for the broader market.