Microsoft’s Stock Slump: When Record Earnings Aren’t Enough

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Microsoft delivered a quarterly performance that surpassed Wall Street's forecasts, yet its shares tumbled approximately 6% in after-hours trading. This seemingly contradictory market response highlights investor apprehension over two critical trends: a deceleration in the crucial cloud division's growth rate and a dramatic surge in capital expenditures. A closer look at the figures reveals why record-breaking results failed to inspire confidence.

A significant factor behind the sell-off was Microsoft's staggering investment in infrastructure. The company spent $37.5 billion on data centers and related infrastructure during the quarter—a 66% year-over-year increase and well above the anticipated $34.3 billion. This expenditure added nearly one gigawatt of new data center capacity in just three months, underscoring that demand continues to outpace supply.

However, the sheer scale of these outlays has raised questions about the timeline for a return on investment. These concerns were compounded by guidance for the operating margin in the coming quarter, projected at 45.1%, which fell short of the 45.5% analysts had expected.

Cloud Growth Shows Signs of Moderating

The Intelligent Cloud segment, home to the Azure platform, remained the engine of growth, contributing $32.9 billion in revenue—a 29% increase. Notably, the broader Microsoft Cloud surpassed $50 billion in quarterly revenue for the first time.

Yet, the core detail that unsettled the market was Azure's growth rate. It slowed to 39%, down from 40% in the prior quarter. While still a formidable pace, the directional shift toward moderation appears to have triggered investor anxiety about the division's long-term trajectory.

Quarterly Results in Detail

For its fiscal second quarter, Microsoft reported revenue of $81.3 billion, a 17% jump that exceeded the consensus estimate of $80.3 billion. Adjusted earnings per share came in at $4.14, also beating the forecast of $3.97. Operating income climbed 21% to $38.3 billion.

Beyond cloud, performance was mixed. The Productivity and Business Processes unit, which includes Office, Teams, and LinkedIn, grew 16% to $34.1 billion. The More Personal Computing segment, however, declined 3% to $14.3 billion.

AI Initiatives Gain Traction Amid Long-Term Commitments

On the artificial intelligence front, Microsoft's Copilot assistant now boasts over 15 million paying users. With a total of 450 million commercial Microsoft 365 licenses, this indicates substantial room for further adoption.

The company's deep partnership with OpenAI represents a major long-term commitment. Of Microsoft's $625 billion in outstanding contractual obligations, $250 billion—or 45%—is attributable to its cloud agreement with the AI research firm.

Cautious Outlook Fuels Market Reaction

Looking ahead, Microsoft provided revenue guidance for the current quarter in a range of $80.7 billion to $81.8 billion, with the midpoint aligning exactly with analyst projections. The company expects Azure growth to be between 37% and 38%, indicating another slight sequential deceleration.

The Frankfurt stock exchange recorded a 6.2% drop in Microsoft's share price on January 29 following the report. The reaction underscores a market sentiment where solid quarterly earnings are no longer sufficient if accompanied by concerns over peak growth rates and spiraling investment costs.

@ boerse-global.de | US5949181045 MICROSOFT’S