Microsoft shares fell as low as 5% in extended trading on Wednesday after the company reported its latest earnings, showing slower growth in its Azure cloud computing business.
Earnings and Revenue Results
Microsoft reported earnings per share of $3.23, above the Wall Street expectations of $3.11. Revenue came at $69.63 billion, above the expected $68.78 billion. However, investors reacted negatively to Microsoft’s forecast, which saw fiscal third-quarter revenue between $67.7 billion and $68.7 billion, less than analysts had expected.
Meanwhile, the Intelligent Cloud segment, which includes Azure, reported revenue of $25.54 billion, 19% higher than last year but short of analysts’ expectations. Azure and other cloud services saw a growth of 31%, slightly less than the 33% of the previous quarter.
Investments in AI and Infrastructure
In terms of the chief executive, Satya Nadella explained how Microsoft was increasingly investing in artificial intelligence (AI), with AI accounting for 13 percentage points of Azure’s growth. Now, the AI business at Microsoft produces an estimated $13 billion annually.
Microsoft is also changing its sales approach toward increasing customer usage of AI. CFO Amy Hood said that the company was working to rectify challenges that had to do with execution and capacity constraints at its data centers.
Market Reaction and Future Outlook
Microsoft’s guidance for Azure growth for the next quarter came in at 31% to 32%, which is lower than analyst expectations of 33.4%. The investments the company made in cloud infrastructure are costing the company cash as it tries to stay ahead of its competitors in AI and cloud computing.
Despite all these, Microsoft remains the second largest player in cloud computing and the firm will make continuous investments in AI that are capable of reshaping its long-term growth.
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