After the bell on Tuesday, Microsoft (MSFT) revealed its fiscal fourth quarter profits, exceeding both the top and bottom lines but falling short of forecasts for cloud revenue.
Microsoft posted earnings per share (EPS) of $2.95 on $64.7 billion in revenue for the quarter. Bloomberg’s data indicates that Wall Street was expecting EPS of $2.94 on revenue of $64.5 billion. For the same quarter last year, Microsoft recorded $56.2 billion in revenue and $2.69 in earnings per share.
Microsoft met forecasts for its overall cloud revenue of $36.8 billion, coming in at $36.8 billion. However, its Intelligent Cloud revenue, which includes its Azure services, was below expectations, coming in at $28.5 billion as opposed to $28.7 billion.
Microsoft’s stock dropped by roughly 2% during pre-market trade on Wednesday after plunging by more than 7% following the announcement.
Despite falling short of projections, Microsoft’s total income increased by 21% in comparison to the previous year. On the other hand, revenue from Intelligent Cloud grew by 19% in the past year. Additionally, Microsoft reported that the growth in revenue from its Azure and other cloud services climbed by 29%, with AI services accounting for 8 percentage points of that gain.
After-hours trading saw shares of other AI-heavy businesses, such as Meta, decline due to Microsoft’s AI gaffe. The revelation caused the social media behemoth to drop more than 3%.
The revelation comes after Alphabet (GOOG, GOOGL), Google’s parent firm and rival, revealed last week’s earnings, stating that interest in AI technologies is contributing to an increase in cloud income.
However, Google did not provide precise figures about the effect of AI on the cloud business, leading some analysts, such as Stephen Ju of UBS, to speculate that the company’s investment in AI may not provide revenue gains until the first half of 2025 at the latest.
As per Karl Keirstead, an analyst at UBS, Microsoft has been gaining a larger portion of the market from Google and Amazon.
In a recent note, Keirstead discussed the three major cloud players: “In terms of share shifts among AWS, Microsoft Azure, and Google Cloud, the most consistent theme in this round of checks was the number of customers and partners that cited share gains by Microsoft resulting from its early lead on the AI front.”
He continued, “This has been a consistent theme from checks over the last six to twelve months, and the feedback regarding Azure’s relative strength felt consistent with prior checks.”
CFO Ruth Porat stated on Alphabet’s earnings call that the business increased its capital expenditures from $12 billion to $13 billion in the previous quarter, with the great majority of those expenditures going toward artificial intelligence.