Microsoft reported robust earnings, surpassing analysts' expectations. The company posted earnings of $3.23 per share on $69.63 billion in revenue, exceeding the EPS of $3.11 and $68.78 billion forecasted by LSEG analysts. Despite this performance, the tech giant's shares dropped about 5% following a weak revenue outlook for the current quarter. Microsoft finance chief Amy Hood announced that the company anticipates revenues between $67.7 billion and $68.7 billion, falling short of the $69.78 billion anticipated by LSEG.
Revenue growth was recorded at 12.3% year over year, marking the slowest pace since mid-2023. The segment including Azure and other cloud services grew 31%, a slight decline from the previous quarter's 33%. This slowdown coincides with Wall Street's scrutiny of DeepSeek's AI models, which reportedly offer cost-effective alternatives to competing U.S. products.
The decline in growth has prompted analysts like Bernstein's Mark Moerdler to suggest a strategic pivot towards Microsoft's core Azure business, independent of AI initiatives.
"Microsoft has proven they can drive a Cloud business, and now they have shown they can drive the largest AI business via a combination of high-quality Gen AI inferencing and Gen AI apps." – Mark Moerdler
Goldman Sachs analyst Kash Rangan remains optimistic about Microsoft's future prospects. He emphasized that Microsoft is well-positioned to capitalize on artificial intelligence adoption and continues to be one of the most compelling investment opportunities in the industry.
"well-positioned" to continue benefitting from artificial intelligence adoption and among the "most compelling investment opportunities" in the industry. – Kash Rangan
CEO Satya Nadella highlighted during the earnings call that DeepSeek's R1 model is now accessible through GitHub and Azure AI Foundry. This move underscores Microsoft's commitment to advancing its AI capabilities despite current challenges.
In comparison to Microsoft, other tech giants reported contrasting fortunes. Meta Platforms saw a nearly 4% increase following strong results, while Tesla experienced gains despite falling short of estimates and reporting a decline in automotive revenue.