Microsoft’s (MSFT.O) latest earnings report has sparked investor concerns, as the company projected lower-than-expected growth for its cloud computing business, Azure. The announcement sent Microsoft’s stock down 4.5% in after-hours trading, with worries over high AI-related expenditures, delayed revenue gains, and rising competition from Chinese AI models.
Despite posting a 12% year-over-year revenue increase to $69.6 billion—beating Wall Street estimates—Azure’s 31% growth fell short of expectations. Microsoft CFO Amy Hood forecasted further slowing in the current quarter, with Azure expected to grow between 31% and 32%, below the anticipated 33%.
CEO Satya Nadella acknowledged cost challenges but highlighted efforts to improve efficiency, stating that AI models are now delivering 10 times better performance per dollar spent. Microsoft also announced the addition of DeepSeek, a Chinese AI model, to its Azure offerings, reflecting growing competition in the sector.
While AI-driven revenue contributed 13 percentage points to Azure’s growth, up from 12% last quarter, investors remain eager for clearer monetization strategies. Microsoft’s capital expenditures hit $22.6 billion, surpassing analyst estimates of $20.95 billion, further fueling concerns about the company’s spending.
Despite these challenges, Microsoft remains a key player in the AI race, with its stock rising 8% over the past year. The company also saw a 67% surge in commercial bookings, driven by large Azure contracts with OpenAI. While competition intensifies, Microsoft continues to invest heavily in AI infrastructure, aiming to solidify its long-term leadership in the space.
