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Microsoft Surges in AI Revenue But Stock Takes a Hit

Writer's picture: James BoothJames Booth

Microsoft has reported impressive earnings for its fiscal second quarter, driven by a booming artificial intelligence sector. Despite surpassing Wall Street expectations, the company's stock fell due to concerns over slowing growth in its Azure cloud services and a cautious revenue forecast for the upcoming quarter.

Key Takeaways

  • Microsoft earned $3.23 per share on sales of $69.6 billion, exceeding analyst expectations.

  • The AI business has reached an annual revenue run rate of $13 billion, a 175% increase year-over-year.

  • Azure revenue growth has slowed, prompting a dip in stock prices despite overall strong performance.

Strong Earnings Report

In the December quarter, Microsoft reported earnings of $3.23 per share, surpassing the consensus estimate of $3.11. The company’s total sales reached $69.6 billion, compared to the expected $68.9 billion. This marks a year-over-year earnings increase of 10% and a sales increase of 12%.

Chief Executive Satya Nadella emphasized the company's commitment to innovation, stating, "We are innovating across our tech stack and helping customers unlock the full ROI (return on investment) of AI to capture the massive opportunity ahead."

AI Business Growth

Microsoft's AI segment has shown remarkable growth, with an annual revenue run rate exceeding $13 billion, reflecting a staggering 175% increase from the previous year. This surge is attributed to the increasing demand for AI solutions across various industries.

Cloud Services Performance

The Intelligent Cloud segment reported a revenue increase of 19%, totaling $25.5 billion. The Productivity and Business Processes unit also performed well, with a 14% increase to $29.4 billion. However, the More Personal Computing unit remained relatively flat, generating $14.7 billion in sales.

  • Cloud Revenue: $40.9 billion, up 21% year-over-year.

  • Azure Revenue Growth: 31% year-over-year in constant currency, down from 34% in the previous quarter.

Stock Market Reaction

Despite the strong earnings report, Microsoft’s stock fell by 5% in after-hours trading, closing at $420.36. This decline followed a regular session drop of 1.1%, where the stock closed at $442.33. Analysts noted that the stock is currently in a 30-week consolidation pattern, with a buy point of $468.35.

Future Outlook

Looking ahead, Microsoft has projected revenue for the March quarter to be around $68.2 billion, which is below the consensus estimate of $69.8 billion. The company anticipates continued growth in Azure, predicting a growth rate of 31% to 32% in constant currency for the upcoming quarter. However, foreign exchange rates are expected to pose challenges.

In summary, while Microsoft has demonstrated robust growth in its AI and cloud services, the stock market's reaction reflects investor concerns about the sustainability of this growth, particularly in the Azure segment. The company remains focused on balancing operational discipline with ongoing investments in its cloud and AI infrastructure.

Sources

  • Microsoft Tops Quarterly Targets On Surging AI…, inkl.

  • Microsoft Stock: Software Giant Reports Surging AI Business | Investor's Business Daily, Investor's Business Daily.

  • Microsoft Tops Quarterly Targets On Surging AI Business. But Stock Falls., Yahoo.

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