Microsoft Shares Drop Following Earnings Report and AI Concerns

Microsoft (MSFT) shares fell 6.3% after the company reported its fourth-quarter earnings, with investor concerns about capital expenditures (capex), the impact of Generative AI (GenAI) on revenue, and its relationship with OpenAI.

Despite narrowly beating analysts’ revenue expectations, the company’s performance in key areas raised doubts.

Highlights from the Report

Personal Computing and Business Services exceeded expectations, while Intelligent Cloud met them. However, Azure’s growth came in lower than expected, with 31% year-on-year constant-currency revenue growth, missing the 32-33% forecast.

Microsoft projected 31-32% growth for Azure in the next quarter, which also fell short of expectations for a stronger second-half rebound.

Market Reaction

The stock closed at $414.87, down 6.1% from the previous close, with volatility being a common theme for Microsoft shares, which have seen 13 significant moves greater than 2.5% over the past year.

The Bigger Picture: AI Landscape

Recently, Chinese AI startup DeepSeek introduced a new language model that competes with top players like Microsoft and Nvidia.

This model, which is cheaper to develop and run, challenges the current assumption that success in AI depends on massive budgets and cutting-edge chips.

CEO Satya Nadella praised the DeepSeek model, suggesting that the AI field may be changing in ways that could impact companies like Microsoft.

Investment Outlook

Microsoft’s stock is down 0.7% this year, trading 11.1% below its 52-week high. Despite this, investors who bought Microsoft stock five years ago have seen their investment grow significantly.

Overall, the drop in Microsoft’s stock reflects ongoing concerns, particularly about its AI strategy and Azure’s performance, as new competitors reshape the market.