Microsoft’s (MSFT) earnings report has ignited quite the complex narrative. On the one hand the software titan, known for its tech legacy, delivered a stellar performance, beating expectations on both revenue and earnings per share. Yet, Wall Street’s response was far from celebratory. The underperformance of the company’s AI ventures cast a shadow over an otherwise impressive quarter, triggering a 7% drop in share prices in after-hours trading.
The headline figures were undeniably strong. Microsoft reported $2.95 diluted EPS for the quarter ending June 30, surpassing analyst predictions of $2.94 and representing a 10% year-over-year increase. Quarterly sales also exceeded expectations, reaching $64.7 billion, a 15% jump compared to the same period last year.
However, the market’s focus quickly shifted to the company’s AI division. The 29% growth in its Azure cloud computing unit fell short of the anticipated 31%, and sales in the AI-heavy intelligent cloud division were lower than expected, reaching $28.5 billion against estimates of $28.7 billion.
This AI stumble triggered investor concern, pushing the share price below $400 in after-hours trading, its lowest intraday level since May 2. This 7% drop marked the worst single-day decline for Microsoft stock since October 2022, highlighting the market’s heightened sensitivity to any signs of weakness in the company’s AI strategy.
Despite these concerns, Microsoft’s last quarter was a record-breaker, with the highest revenue in its history. The company’s $88.1 billion net income ($11.80 EPS) and $245.1 billion in revenue for the fiscal year 2024 shattered previous records. This remarkable financial performance underscores Microsoft’s resilience and ability to innovate across diverse sectors.
It’s worth noting that Microsoft’s 2024 fiscal year revenue is roughly equivalent to the combined GDPs of Greece and New Zealand, a testament to the company’s global reach and influence. From its humble beginnings as a high school computer club, Microsoft has grown into a tech behemoth, shaping the digital landscape and driving innovation across various industries.
However, the company’s recent earnings report serves as a stark reminder that even giants like Microsoft are not immune to market pressures. The disappointing performance of its AI business, despite overall strong financials, has raised questions about the company’s ability to maintain its momentum in this rapidly evolving field. As the tech world braces for a flurry of earnings reports from other giants like Meta, Amazon, and Apple, Microsoft’s experience highlights the delicate balance between success and investor expectations in the high-stakes world of technology.
Beyond the immediate market reactions, Microsoft’s journey is also intertwined with the broader narrative of corporate rivalry. The company is steadily closing the gap with Apple as the most profitable U.S. company. While Microsoft’s sub-$90 billion profit in the 2024 fiscal year is still behind Apple’s projected $102 billion for its fiscal year, analysts predict a much closer race by 2026. This could mark a significant shift in the tech landscape, with Microsoft potentially regaining its profitability lead over Apple for the first time since 2010.