Microsoft's stock tumbled 7% in after-hours trading on Tuesday, despite the tech giant reporting better-than-expected earnings and revenue for the fiscal fourth quarter. Investors were seemingly more focused on the company's disappointing cloud performance, particularly in the Azure division.
For the quarter ending June 30th, Microsoft's revenue climbed 15% year-over-year to $64.73 billion, exceeding analysts' expectations of $64.39 billion. Net income also rose to $22.04 billion, up from $20.08 billion in the same period last year.
However, the Intelligent Cloud segment, which includes Azure, Windows Server, Nuance, and GitHub, generated $28.52 billion in revenue, falling short of the $28.68 billion analysts had anticipated. While Azure and other cloud services revenue grew by 29%, this was below the 31% growth projected by CNBC and StreetAccount analysts.
This tepid cloud performance comes at a time when Microsoft is locked in a fierce battle with Amazon Web Services and Google Cloud Platform for dominance in the artificial intelligence (AI) landscape. All three tech giants are heavily investing in AI capabilities to attract startups and large corporations as generative AI models rapidly evolve.
Microsoft highlighted that 8 percentage points of the 29% Azure growth came from AI services, but this appears to have fallen short of investor expectations, leading to the stock decline.
The company's Productivity and Business Processes unit, encompassing Office software and LinkedIn, saw a more positive performance with revenue increasing 11% to $20.32 billion, outperforming analysts' estimates of $20.13 billion.
Meanwhile, the More Personal Computing unit, which includes the Windows operating system, gaming, devices, and search advertising, contributed $15.90 billion in revenue, marking a 14% increase and exceeding the StreetAccount consensus of $15.49 billion.
This segment benefited from a strengthening PC market, with sales of Windows licenses to device makers rising by 4%.
Microsoft's recent launch of Surface PCs with AI features, allowing for local model execution without internet connectivity, further contributed to the positive performance. CEO Satya Nadella highlighted the company's focus on bringing "real joy and a sense of wonder back to creation on the PC".
Despite the after-hours dip, Microsoft stock has seen a 12% increase in 2024, compared to the S&P 500 index's 13% gain over the same period.
Executives are expected to discuss the results and provide guidance during a conference call with analysts starting at 5:30 p.m. ET.
