Microsoft Corporation (NASDAQ: MSFT) saw its stock drop more than 5% in after-hours trading on Tuesday following a disappointing fourth-quarter earnings report. The tech giant’s cloud revenue growth fell short of Wall Street expectations, despite a substantial increase in investment spending aimed at driving future growth.
Earnings and Revenue
Microsoft reported earnings per share (EPS) of $2.95 and revenue of $64.7 billion for the fourth quarter. Analysts surveyed by Investing.com had forecasted EPS of $2.94 and revenue of $64.38 billion. The company’s performance was generally in line with expectations but did not alleviate concerns about slowing growth in its cloud division.
Cloud Business Performance
The growth rate of Azure, Microsoft’s cloud computing platform, was 29% for the quarter. This figure missed the analyst consensus of 30.2% and represents a deceleration from the 31% growth reported in the third quarter. Azure’s performance is often viewed as a key indicator of demand for artificial intelligence (AI) services, with AI-related growth contributing approximately 8% to Azure’s total growth, up from 7% in Q3.
Investment and Spending
Despite the slowdown in cloud growth, Microsoft has significantly ramped up its capital investments. The company’s capital expenditures surged to $19 billion in Q4, up from $14 billion in Q3 and nearly double the $10.7 billion recorded in the same quarter the previous year. This increase in spending reflects Microsoft’s ongoing commitment to expanding its cloud infrastructure and other growth initiatives.
Segment Performance
Revenue from Microsoft’s productivity and business processes segment increased by 11% to $20.3 billion, driven by higher sales of official commercial products and cloud services. The more personal computing segment saw a 3% rise in revenue to $11 billion, with Windows revenue up by 7%.
Market Reaction and Analyst Commentary
The after-hours trading decline followed concerns that Microsoft’s Intelligent Cloud segment revenue did not meet consensus expectations. RBC noted that Azure’s growth decelerated by one percentage point, falling short of buy-side expectations and coming in at the lower end of the company’s guidance.
Investment Outlook
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