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Microsoft’s The stock fell 10% after Thursday’s earnings report, its biggest one-day drop since 2020, but did not recover in premarket trading on Friday.
The stock was up 0.55% as of Thursday’s close at 6.44 a.m. ET.
Although the company made a profit in the second quarter Beat analysts’ revenue expectations. Like other hyperscale companies, Microsoft has invested heavily in building artificial intelligence infrastructure. but Yuan Huge AI spending was reported on the same day as its Share price rose 8%.
Why did Microsoft stock price fall?
Investors are focused on the growth of Microsoft’s cloud computing platform Azure and other cloud services, which are growing 39% below the StreetAccount consensus of 39.4%. These areas grew 40% in the fiscal first quarter.
The company’s chief financial officer, Amy Hood, said the cloud business’ performance could have been higher if the company had allocated more data center infrastructure to customers rather than prioritizing on-premises needs.
Implied operating margins for the third quarter were also lower than expected, with Microsoft expecting revenue from its personal computing business, including Windows, to be about $12.6 billion, below StreetAccount’s forecast of $13.7 billion.
What analysts say
Barclays analyst Raimo Lenschow said in Thursday’s earnings report that most investors only focus on the growth of Azure to judge the health of Microsoft’s business, especially the performance of artificial intelligence.
“It now looks like the company won’t really accelerate Azure further as big data disciplines and additional capacity are used for its own, higher-margin first-party products like Co-Pilot and its own AI R&D efforts,” he said.
“We believe investors need to understand that management made the smart decision to focus on what is best for the company long-term, rather than driving up the stock price this quarter or even last quarter and in future quarters as capacity constraints may lessen,” Bernstein analyst Mark L. Moerdler said in a report Thursday.
The market remains bullish on Microsoft stock. Wells Fargo rated the stock an “overweight” in a report Thursday, adding that its “early AI leadership and strong existing position in tight markets” justified its high trading price.
