Market Analysis

Microsoft Stock Falls as Q4 Cloud Growth Falls Short of Estimates; Analysts Weigh In

Amos Simanungkalit · 31 Jul 20246.9K Views

Microsoft shares fell in premarket trading by over 2% on Wednesday, following a fourth-quarter report that revealed its cloud revenue growth did not meet Wall Street expectations, despite increased investment aimed at spurring future growth.

For the quarter, Microsoft Corporation (NASDAQ) reported earnings per share of $2.95 on revenue of $64.7 billion. Analysts surveyed by Investing.com had projected EPS of $2.94 and revenue of $64.38 billion.

Microsoft's cloud division, Azure, grew by 29% in the quarter, falling short of the 30.2% growth anticipated by analysts. This represented a slowdown from the 31% growth observed in the previous quarter. Azure’s performance is often seen as a key indicator of AI demand, with AI-related growth contributing approximately 8% to Azure's total growth, up from 7% in the prior quarter.

The slower cloud growth comes as Microsoft significantly increased its capital expenditure to $19 billion in Q4, a substantial rise from $14 billion in Q3 and nearly double the $10.7 billion reported in the same quarter last year.

Commercial bookings, however, surged 17% year-over-year, surpassing expectations.

Despite the shortfall, Jefferies analysts maintained a "Top Pick" rating on Microsoft, highlighting the company's strong position in the AI sector. They noted that Azure’s growth is expected to pick up in the second half of the year as new capacity is brought online to meet AI demand.

Guggenheim analysts also addressed investor concerns, stating that Microsoft's forecast for Azure's rebound in the coming quarters should alleviate worries. However, they cautioned that if the company struggles to predict short-term performance, it raises questions about the reliability of long-term forecasts, reiterating a Neutral rating on the stock.

In other segments, revenue from productivity and business processes increased by 11% to $20.3 billion, driven by gains in commercial products and cloud services. The personal computing segment saw a 3% rise to $11 billion, with Windows revenue climbing by 7%.

RBC noted that shares declined after hours due to the Intelligent Cloud segment's revenue falling short of expectations, with Azure’s growth slowing by one percentage point and landing at the lower end of guidance.