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Microsoft's artificial intelligence-driven cloud growth fell just wanting investors' high expectations within the three months to the tip of June, sending the corporate's stock price plummeting as Wall Street closely examines the extent to which the fast-growing technology will boost the success of the large tech corporations.
Sales of Microsoft's much-watched cloud division, the group's biggest revenue driver, which incorporates the cloud computing platform Azure, rose 19 percent year-on-year to $28.5 billion, just under Wall Street forecasts of $28.7 billion.
Azure also reported barely slower revenue growth of 29 percent, narrowly missing analysts' forecasts for a jump of between 30 and 31 percent, in comparison with a 31 percent increase within the previous quarter.
Total revenue rose 15 percent year-on-year to $64.7 billion, beating expectations of $64.4 billion. Net income rose 10 percent to $22 billion, beating analysts' forecasts of $21.8 billion.
Shares of the Seattle-based company, which have risen about 15 percent this yr, fell 6 percent in after-hours trading in New York.
Investors are closely watching Microsoft's fortunes to see whether Big Tech can translate the thrill around recent cloud-hosted AI software into revenue and profit. Its $13 billion partnership with OpenAI, the startup behind ChatGPT, has given Microsoft a leg up within the race to win customers for brand spanking new generative AI services.
The contribution of AI to Azure cloud growth continued to rise barely, amounting to eight percentage points last quarter, the corporate said. It was 7 percentage points last quarter and 6 percentage points the quarter before. Before the outcomes were released on Tuesday, analysts at Deutsche Bank estimated that AI's contribution can be around 8 to 9 percentage points.
Some analysts have raised concerns about how long it would take for the large investments in AI infrastructure, akin to data centers, to repay. Shares of Google parent Alphabet slipped last week after the corporate's capital spending in AI beat analysts' expectations, weighing on technology stocks broadly.
Following the discharge of Microsoft's earnings report, shares of several other major technology corporations fell. Amazon and Meta — whose results might be announced later this week — each lost 3 percent, and Alphabet shares lost 0.6 percent.
Analysts expect Microsoft's capital spending to rise to over $50 billion in 2025, up from $32 billion in 2023. However, in line with Tuesday's report, the corporate exceeded that figure in fiscal 2024, recording $55.7 billion in capital spending over the 12 months.
Kendra Goodenough, director of investor relations, said Microsoft's demand for AI continues to exceed available capability, a headwind the corporate had previously announced.
Microsoft has been battling some high-profile issues affecting its core software products recently. An Azure outage on Tuesday got here just days after a faulty update to software from cybersecurity group CrowdStrike caused tens of millions of Windows devices worldwide to develop into unresponsive, creating crippling problems for airlines, healthcare systems and others.
