Microsoft Earnings Top Estimates, but Stock Falls Over 3% As Execs Detail AI's Costs

Dow Jones2023-07-26
Azure cloud-computing business sees 27% growth in constant currency, matching expectations

Microsoft Corp. easily topped profit and revenue expectations for its latest quarter, though its shares were moving more than 3% lower in extended trading Tuesday after the company discussed the year ahead.

The technology giant has won favor on Wall Street for its positioning in the artificial-intelligence revolution, though Chief Financial Officer Amy Hood said on Tuesday's earnings call that "even with strong demand and a leadership position," Microsoft's $(MSFT)$ "growth from our AI services will be gradual" as AI for its Azure cloud-computing business ramps and as the company works toward the general availability of its Copilot productivity product.

Microsoft's AI impacts will thus be weighted toward the second half of the new fiscal year that just began, she continued. Meanwhile, she expects that Microsoft's capital expenditures will rise sequentially each quarter "as we scale to meet demand signals."

Hood's commentary comes as Microsoft posted fiscal fourth-quarter results Tuesday afternoon that showed a 15% jump in revenue for the company's cloud-computing segment, which it calls Intelligent Cloud. Revenue for the segment came in at $24.0 billion, while analysts had been anticipating $23.8 billion. The growth rate was 17% on a currency-neutral basis.

The company said revenue for Azure and other cloud services was up 26%, or 27% in constant currency. Microsoft's forecast had been for 26% to 27% in constant-currency Azure sales growth, while the company posted 31% constant-currency growth on the metric in the March period. The FactSet consensus was for 27% growth in constant currency.

"While we believe the Street was hoping for Azure growth more in the 28% range, we believe the consumption part of the business held up well," Evercore ISI analyst Kirk Materne said in a note to clients.

For the September quarter, Microsoft anticipates 25% to 26% in constant-currency Azure growth.

The company generated fiscal fourth-quarter net income of $20.1 billion, or $2.69 a share, compared with $16.7 billion, or $2.23 a share, in the year-earlier period. Analysts tracked by FactSet were modeling $2.55 a share.

Overall revenue for Microsoft climbed to $56.2 billion from $51.9 billion, whereas analysts had been expecting $55.5 billion.

Microsoft logged $18.3 billion in revenue for its productivity and business processes unit, up 10% from a year before, or up 12% in constant currency. This part of the business includes LinkedIn and both commercial and consumer versions of Office. Analysts had been looking for $18.1 billion.

Revenue for the More Personal Computing segment, which includes Windows and Xbox content and services, dropped 4% to $13.9 billion and was off 3% on a constant-currency basis. The FactSet consensus was for $13.6 billion.

"Overall, we believe that Microsoft delivered solid F4Q results despite a lot of macro headwinds, and we believe that the investment narrative gets stronger in [the second half of the calendar year] as some optical headwinds reverse and [comparisons] soften, and Microsoft's position in the enterprise market continues to get stronger as customers look to consolidate spending," Evercore's Materne wrote.

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Comments

  • MaxGain
    2023-07-26
    MaxGain
    The MSFT AI bubble have finally BURST!
  • SudTradepro
    2023-07-26
    SudTradepro
    Beginning of Downfall with all the AI hype gone already in second half. 
  • Andrewinho
    2023-07-26
    Andrewinho
    Opportunity!! 👏👏👏
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