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Microsoft Corp. saw its stock plummet 10 percent on Thursday, erasing $357 billion from its market capitalization and marking the company’s steepest single-day decline since March 2020, when markets dropped amid the COVID-19 pandemic.
The drop left Microsoft’s market value at $3.22 trillion, as investors reacted to an earnings report that revealed shortcomings in cloud growth and raised questions about the payoff from massive investments in artificial intelligence.
Microsoft reported revenue of $81.3 billion for the October-December quarter, a 17 percent increase from the previous year, with net profit reaching $30.9 billion, or $4.14 per share, exceeding analyst expectations. The figures reflect the company’s push into AI, bolstered by its partnership with OpenAI, the maker of ChatGPT.
The disappointment centered on Microsoft’s Azure cloud services, which grew 39 percent but fell short of expectations amid capacity constraints. Company executives attributed the miss to prioritizing internal AI development over allocating more computing power to Azure customers.
“If I had taken the graphics processing units that just came online in the first quarter and second quarter, and allocated them all to Azure, the KPI (growth) would have been over 40 percent,” said Amy Hood, Microsoft’s executive vice president and chief financial officer.
Guidance for the current quarter also underwhelmed, with Azure growth forecasted to hold at 37 percent to 38 percent for January-March, down from prior periods due to capacity constraints. Capital expenditures reached $37.5 billion in the reported quarter, a 66 percent jump from the prior year, with much tied to AI infrastructure, but are expected to dip slightly ahead.
“One big obvious issue is that revenues are up 17 percent and the cost of revenues are up 19 percent. So if that is a new long-term trend, that is one of my concerns,” said Eric Clark, portfolio manager of the LOGO ETF.
“Microsoft disappointed and there are some genuine concerns that AI investments will eat the software companies’ lunches,” said John Praveen, managing director at Paleo Leon.
Zacks Investment Research analyst Bryan Hayes attributed the stock dip to “investor scrutiny” of Microsoft’s large spending on the infrastructure for computer chips and data centers needed to power AI.
The plunge reflects growing investor impatience with Big Tech’s AI spending spree. Microsoft, which rode its OpenAI partnership to become the world’s most valuable company in 2024, now faces scrutiny over returns on billions poured into AI amid chip shortages and competition.
“The market appears to be questioning whether these massive capital expenditure hikes will generate sufficient returns,” said Jesse Cohen, senior analyst at Investing.com. “This reflects a growing divide between tech companies’ AI ambitions and Wall Street’s patience for open-ended investment cycles.”
Broader market context shows a divide: While Meta’s AI enhancements in ad targeting drove a 24 percent revenue jump and optimistic forecasts, allowing it to justify an 87 percent capex increase to $135 billion, Microsoft’s heavy reliance on OpenAI—with significant exposure in its cloud backlog—introduces concentration concerns.
“Microsoft’s deep ties to OpenAI underpin its leadership in enterprise AI, but they also introduce concentration risk,” said Zavier Wong, market analyst at eToro.
Tesla Inc., another AI-focused firm, rose 2.9 percent despite planning to double spending to over $20 billion on autonomy and robots, after beating quarterly expectations. But overall, Wall Street’s swings underscore pressure on tech giants to deliver profit growth matching their valuations, as stocks have run to records but now face criticism for being overpriced.
Microsoft’s shares have risen only 7 percent over the past two years, lagging Meta’s 87 percent gain, as investors reward tangible AI payoffs. Company officials remain optimistic, with CEO Satya Nadella noting on an earnings call that the company is still in the “beginning stages” of AI diffusion.
Reuters and The Associated Press contributed to this report.
Kimberly Hayek is a reporter for The Epoch Times. She covers California news and has worked as an editor and on scene at the U.S.-Mexico border during the 2018 migrant caravan crisis.
