Microsoft Shares Down 3.6% Premarket: Cloud Forecast Misses, AI Spending Disappoints

Microsoft (MSFT) shares fell 3.6% in premarket trading on Wednesday, following the company's earnings report that missed analysts' expectations for cloud growth and raised concerns about AI spending. The tech giant reported quarterly GAAP earnings of $3.23 per share, beating the $3.11 consensus estimate, but revenue of $69.6 billion fell short of the $69.81 billion projection. Microsoft's Intelligent Cloud segment, which includes Azure, grew 19% year-over-year, but analysts had expected a 20% increase.



Microsoft's Azure cloud business grew 31% in the latest quarter, slightly below the 32% consensus estimate. The company's capital expenditures came in $1.6 billion higher than consensus forecasts, raising concerns about the company's ability to meet investor expectations and maintain its competitive edge in the cloud market. Microsoft's CFO, Amy Hood, attributed the miss to slower-than-expected growth in the company's Azure cloud business between October and December.

Microsoft's increased AI spending has also raised concerns among investors. The company has earmarked $80 billion for AI in its current fiscal year, which has led to questions about the lack of a clear roadmap for monetizing these investments. Some investors, like Brian Mulberry of Zacks Investment Management, have expressed a desire to see a more defined plan for generating revenue from AI spending. Microsoft's CEO, Satya Nadella, and Meta's CEO, Mark Zuckerberg, defended their companies' hefty AI spending, arguing that investing heavily in capital expenditure and infrastructure is going to be a strategic advantage over time.

The emergence of DeepSeek, a Chinese-owned and developed chatbot, has forced U.S. tech investors to question the huge sums involved in AI investment and the lofty market values of exposed firms. The market reaction to DeepSeek's claims of creating an assistant on a shoestring budget has led to a significant sell-off in AI-linked stocks, including Microsoft. The company's shares have fallen more than 4% in extended trading after it said that growth in its Azure cloud business in the current quarter would fall short of estimates.

Microsoft's increased AI spending and the emergence of DeepSeek have raised concerns about the competitiveness of U.S. firms in the AI race. However, Microsoft's CEO, Satya Nadella, and Meta's CEO, Mark Zuckerberg, have defended their companies' hefty AI spending, arguing that investing heavily in capital expenditure and infrastructure is going to be a strategic advantage over time. Microsoft's increased AI spending aligns with the company's long-term growth objectives by expanding its AI capabilities, maintaining a competitive edge, monetizing AI investments, and attracting and retaining talent.

In conclusion, Microsoft's shares fell 3.6% premarket after the company's earnings report missed analysts' expectations for cloud growth and raised concerns about AI spending. The tech giant's Azure cloud business grew 31% in the latest quarter, slightly below the 32% consensus estimate, and its capital expenditures came in $1.6 billion higher than consensus forecasts. Microsoft's increased AI spending has also raised concerns among investors, who are questioning the lack of a clear roadmap for monetizing these investments. The emergence of DeepSeek, a Chinese-owned and developed chatbot, has forced U.S. tech investors to question the competitiveness of U.S. firms in the AI race. Despite these concerns, Microsoft's increased AI spending aligns with the company's long-term growth objectives by expanding its AI capabilities, maintaining a competitive edge, monetizing AI investments, and attracting and retaining talent.