Microsoft Corporation (NASDAQ: MSFT), a holding in the US Growth portfolio, experienced a notable decline in its share price, sliding as much as 8% in after-hours trading following the release of its fourth-quarter earnings report.
The drop was largely attributed to slightly disappointing cloud revenue figures, which fell short of market expectations.
Microsoft reported revenue of $64.73 billion, exceeding the consensus estimate of $64.52 billion. However, Microsoft Cloud revenue came in at $36.8 billion, slightly missing the $36.84 billion estimate. The Intelligent Cloud segment generated $28.52 billion, below the expected $28.72 billion. Azure and other cloud services posted a 30% year-over-year growth, in line with estimates, while the Productivity and Business Processes and More Personal Computing segments surpassed expectations.
Despite the overall positive revenue performance, the cloud segment’s underperformance led to investor disappointment. Earnings per share (EPS) stood at $2.95, and operating income reached $27.93 billion, both surpassing analyst estimates. Capital expenditure was higher than anticipated at $13.87 billion, reflecting Microsoft’s significant investments in its infrastructure to support AI growth.
Analysts remain optimistic about Microsoft’s long-term prospects despite the short-term market reaction. Evercore ISI maintained an “Outperform” rating with a $500 price target, citing the company’s robust business model and growth potential in AI, Azure, and Security. Jefferies also held a positive outlook, albeit with some reservations about Azure and Office 365 results.
Microsoft’s strategic investments in AI and cloud infrastructure position it well for future growth. The company’s collaboration with OpenAI and integration of AI capabilities into products like Azure and Office 365 highlight its commitment to innovation. The Activision Blizzard acquisition further strengthens its gaming portfolio, potentially adding $9-$10 billion in annual sales.
Post-earnings, Microsoft’s focus on expanding its data centres and enhancing its AI capabilities underscores a commitment to meeting growing demand. While Azure’s growth may moderate in the near term, the long-term outlook remains positive, driven by the increasing adoption of AI and cloud services. Microsoft’s diversified product portfolio, from productivity software to gaming, provides multiple revenue streams and growth opportunities.
In conclusion, while investors have reacted poorly to the latest update, we do not see a change in the longer-term outlook for the stock as strategic investments and strong market position suggest a favourable long-term outlook.
