:max_bytes(150000):strip_icc()/GettyImages-2257905159-ec2c5f044c6b4d94820b4db8c87e2515.jpg "Why Microsoft’s Stock Is Tumbling Thursday")
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Key Takeaways
- Microsoft shares slumped Thursday, despite quarterly revenue and earnings that topped estimates.
- Analysts said the tech giant’s growing AI spending, weaker-than-expected cloud growth, and reliance on a few large customers raised concerns.
Microsoft (MSFT) shares are taking a big hit after the company reported earnings yesterday.
The shares were down nearly 12% around $425 in recent trading, leading losses on the Dow Jones Industrial Average and the Nasdaq. Read Investopedia’s full coverage of today’s trading here.
While Microsoft’s quarterly revenue and earnings topped analysts’ estimates, worries about the tech giant’s cloud growth, coupled with its rising spending on AI and reliance on a few large customers, weighed on the shares.
Why This Matters to Investors
As Microsoft and many of its Big Tech peers have boosted spending on AI infrastructure, they’ve also faced a higher bar to impress investors with their growth.
Morgan Stanley analysts said that while growth from Microsoft’s Azure cloud narrowly beat the company’s guidance, it grew slower than many on Wall Street anticipated.
During the company’s earnings call, CFO Amy Hood stressed that Microsoft’s cloud growth has been held back by capacity constraints, and that Microsoft is investing in building out its AI infrastructure to meet demand, but its higher-than-expected spending has added to concerns.
Microsoft also revealed that nearly half of its backlog was attributable to OpenAI. Jefferies analyst Brent Thill said on CNBC following the results that the detail underscored worries about concentration risks and OpenAI’s ability to pay its hundreds of billions of dollars in commitments.
Still, Jefferies and Morgan Stanley said they said they see gains ahead for the shares. Though analysts’ ratings are in flux, most have bullish ratings for Microsoft, with 14 of the 15 analysts tracked by Visible Alpha calling the stock a “buy,” compared to one neutral rating. Their average price target around $598 would imply over 40% upside from the stock’s recent level.
