Shares of Microsoft Corporation (NASDAQ: MSFT) plummeted by 3.70% following the release of its fiscal fourth-quarter earnings. The results showed a sequential decline in Azure cloud revenue growth, which eclipsed the company’s quarterly profits and revenues that had surpassed Wall Street’s expectations.
According to the report, Microsoft’s Azure and other cloud services witnessed a year-over-year growth of 26% for the fourth quarter, down 1 percent from the previous quarter. The decline in Azure growth has been evident in each sequential quarter since Q3 2022, capturing the attention of investors as companies reduce capital expenses due to rising interest rates.
During an investor call, Microsoft projected that Azure’s growth for the current quarter would range between 25%-26%. When asked directly if the sequential drop in Azure revenue growth had reached its bottom, Microsoft management refrained from providing a clear answer, adding to the uncertainty.
“(It is) still early innings of the cloud migration itself, so there’s a lot there still,” Microsoft CEO Satya Nadella said during the company’s earnings call. “And then on top of that, there’s this completely new world of AI driving a set of new workloads…We do think that this is a business that can have sustained high growth, which is something that, we are excited about.”
Looking at the overall revenue for the fourth quarter, Microsoft saw an 8% rise to $56.2 billion, beating Wall Street analysts’ expectations of $55.5 billion. In addition, the net income for the quarter increased by 20% to $20.1 billion, or $2.69 per share, surpassing analysts’ estimates of $2.55 per share.
The revenue growth across different segments showed Productivity and Business Processes Revenue increasing 10% to $18.29 billion, higher than the expected $18.1 billion. More Personal Computing Revenue decreased by 4% to $13.9 billion but exceeded the estimated $13.58 billion. Intelligent Cloud Revenue, led by Azure, rose 15% in the quarter to $24 billion, surpassing projections for $23.8 billion.
Microsoft’s fiscal year 2023 saw the lowest annual growth rate since 2017, with a 7% increase in revenue.
Microsoft’s (NASDAQ: MSFT) AI-Related Ventures Boost Investor Confidence
Microsoft’s stock had been performing exceptionally well, with a rise of over 43% this year, due to the growing hype around artificial intelligence in the tech sector. The company’s $10 billion investment in the ChatGPT creator, OpenAI, and the integration of AI into its products further bolstered investor confidence.
Microsoft’s latest AI product, Copilot, which is set to integrate into Microsoft 365 products, garnered significant interest from Wall Street due to its promising features and monthly pricing of $30. Consequently, several analysts raised their price targets on the stock.
Copilot boasts capabilities like summarizing unread emails, reformatting PowerPoint bullets, and generating drafts based on outlines.
Microsoft’s management has tempered the excitement surrounding Copilot by stating that the growth of their AI services will be gradual. They also noted that the impact on revenue will be more significant in the second half of the 2024 fiscal year.
Microsoft’s impending acquisition of Activision Blizzard was briefly mentioned during the earnings call, with management clarifying that it was not factored into the 2024 outlook.
“We continue to work through the regulatory approval process and remain confident about getting the deal done,” Nadella said. “We are committed to bringing more games to more players everywhere. Great content is key to our approach, and our pipeline has never been stronger.”
