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Why Microsoft's stock dropped today. Analyst lists core issue for investors
Microsoft's stock plunged as much as 11% to $429.24 on Thursday, fueling investor concerns
Microsoft's stock plunged as much as 11% to $429.24 on Thursday, fueling investor concerns. This was the biggest intraday slide for the company since March 2020. On Wednesday, the Satya Nadella-led tech conglomerate reported its second-quarter earnings, with cloud revenue topping $50 billion for the first time. Capital expenditures hit $37.5 billion in the period, up 66% from a year earlier and exceeding analyst estimates for $36.2 billion.
Microsoft’s Azure cloud division reported a 38% increase in quarterly revenue on a constant-currency basis. That marked a slight deceleration from the previous quarter, with growth easing by one percentage point. Looking ahead, the company forecasts Azure revenue growth of between 37% and 38% for the current quarter.
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Revenue rose 17% to $81.3 billion, while earnings came in at $5.16 per share. Profit was lifted by gains tied to Microsoft’s stake in OpenAI, which added $1.02 to per-share earnings.
Analyst identifies core concern
Morgan Stanley analyst Keith Weiss, as per Bloomberg, spoke about concerns among investors.
“One of the core issues that is weighing on investors is cap ex is growing faster than we expected, and maybe Azure is growing a little bit slower than we expected,” he said. Investors were concerned about the return on that spending, he further added.
Satya Nadella addresses concerns
Meanwhile, CEO Satya Nadella defended Microsoft's capital expenditures. “Acquiring an Azure customer is super important to us, but so is acquiring an M365 or a GitHub or a Dragon Copilot [customer],” he said.
“We don’t want to maximize just one business of ours,” he added. “We want to be able to allocate capacity while we’re sort of supply constrained in a way that allows [us] to essentially build the best LTV [lifetime value] portfolio.”
Microsoft executives emphasized that cloud growth would have been stronger if more capacity had been directed outward. Chief Financial Officer Amy Hood said a significant portion of new cloud resources is currently being used internally to support products like Copilot, noting that Azure’s reported growth would have been higher if that capacity had been fully allocated to external customers.
The company continues to see surging demand for cloud services, fueled in large part by its deepening relationship with artificial intelligence firm OpenAI. However, Microsoft has acknowledged ongoing challenges in bringing new data-center capacity online fast enough, even as it pours billions into infrastructure expansion.
Looking further ahead, Microsoft reported a sharp increase in long-term customer commitments. Its backlog more than doubled from a year earlier, reaching $625 billion by the end of December. Nearly half of that total was attributed to OpenAI, following a newly disclosed agreement valued at roughly $250 billion.
(With Bloomberg inputs)
