Microsoft hit as strong financials failed to meet high AI expectations

Microsoft (NASDAQ:MSFT) stock dropped in Tuesday’s ‘afterhours’ trading, losing 3%, after its Azure cloud services operation saw revenues on the light side of market expectations.

The IT giant’s Intelligent Cloud business, which stands over Azure, generated some $28.5 billion whilst the consensus market forecast was pitched at $28.7 billion.

Such has been the general bullishness over AI in the market in 2024, this minor miss for one subsidiary overshadowed what otherwise read as a positive quarter.

Microsoft reported fourth-quarter group revenue of $64.7 billion, better than the $64.39 billion predicted by the market, and, earnings per share of $2.95 beat the consensus forecast of $2.93.

Net income for the quarter was $22 billion, up 10% year-over-year.

The stock was trading down because investors were hoping for an acceleration in cloud growth driven by AI investments, that’s according to Amish Patel, head of equity research at UK stockbroker Charles Stanley.

“Ultimately, the payoff from AI investments will take time and we continue to believe Microsoft remains well placed to benefit from AI adoption,” Patel said in a note.

In afterhours trade, Microsoft shares traded as low as $390, but had recaptured some ground – down $14.93 or 3.53%, priced at $408.38.