Microsoft (MSFT) Drops After Reporting Record Spending on AI Hardware – Bloomberg
Microsoft’s latest earnings report had a bit of everything — a solid beat on revenue and profit, strong demand for AI tools, but also enough caution to make investors hit the sell button. The result? Microsoft stock slid nearly 7% in after-hours trading, reminding the market that even tech giants aren’t immune to growth worries.
Let’s break it down in plain English.
Why Did Microsoft Stock Fall Today?
The short answer: slowing cloud growth and softer margin guidance, even though the headline numbers looked good.
Microsoft reported adjusted earnings per share of $4.14, beating expectations, while revenue came in at $81.27 billion, also above estimates. On paper, that’s a win. But markets care just as much about the future as the present.
Microsoft warned that operating margins in the coming quarter would be slightly lower than Wall Street expected, mainly due to heavy investments in AI infrastructure and talent.
Cloud Growth Is Still Strong — Just Not as Fast
Azure, Microsoft’s cloud business, remains a powerhouse. Revenue from Azure and other cloud services grew 39% year over year. That’s impressive, but it’s a touch slower than last quarter and just below some analysts’ expectations.
In today’s market, even a small slowdown in cloud growth can spook investors — especially when cloud is the engine driving Microsoft’s long-term valuation.
AI Is Booming, but It’s Expensive
One big highlight: Microsoft now has over 15 million paid seats for Microsoft 365 Copilot, its AI-powered productivity add-on. That’s a major milestone and a clear sign that customers are willing to pay for AI tools.
However, building and running AI at scale isn’t cheap.
Microsoft spent $37.5 billion on capital expenditures and finance leases this quarter, well above Wall Street estimates. These costs are tied to data centers, AI chips, and computing capacity needed to support services like Azure, Copilot, and partnerships with OpenAI.
CEO Satya Nadella summed it up neatly, noting that customer demand continues to outstrip supply, forcing Microsoft to invest aggressively.
OpenAI Plays a Bigger Role Than Ever
Another key takeaway is how deeply OpenAI is now embedded in Microsoft’s future.
By the end of the quarter, Microsoft’s commercial remaining performance obligation (backlog) hit $625 billion, up a massive 110%. Nearly 45% of that backlog is tied to OpenAI, thanks to a $250 billion cloud commitment.
While Microsoft’s CFO Amy Hood emphasized that the backlog is diversified and resilient, some analysts flagged the growing concentration as a risk if OpenAI’s financial plans don’t pan out as expected.
Not All Segments Were Winners
- Productivity and Business Processing (Office, LinkedIn, Dynamics) grew a healthy 16%.
- Intelligent Cloud revenue beat expectations.
- More Personal Computing (Windows, Xbox, Surface, Bing) slipped 3%.
- Gaming revenue dropped nearly 10%, with Microsoft taking an impairment charge and facing criticism over strategy confusion.
The Big Picture for Investors
Microsoft is still growing, still profitable, and still leading in enterprise AI. But the market is recalibrating expectations.
With AI spending rising, margins under pressure, and cloud growth normalizing, investors are asking a tougher question: how long before AI investments translate into even stronger profits?
For now, Microsoft remains a long-term AI and cloud leader — but short-term volatility may be part of the ride.
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