Microsoft's earnings report disappointed some investors, and the company's stock price fell about 10% on Thursday, the largest one-day drop since March 2020. The sharp drop in stock prices caused the technology giant's market value to shrink by US$357 billion. As of Thursday's close, its market value fell to US$3.22 trillion.
Microsoft CEO Satya Nadella
The iShares Expanded Technology Software Sector-traded open-end index fund plunged 5% on Thursday, while the Nasdaq Composite Index, which has a high proportion of technology stocks, closed slightly down 0.7% that day, but not all technology stocks weakened.
Meta surprised analysts yesterday by releasing strong results and quarterly revenue guidance, sending the company's stock price soaring 10% on Thursday.
Investors found several areas of dissatisfaction in Microsoft's earnings report.
Azure cloud services and other cloud business revenue growth, which is a core indicator, recorded 39%, lower than the 39.4% consensus market forecast given by Street Account, a Wall Street financial data platform. The company expects that in the third quarter of the fiscal year, the revenue of the "more personal computing" business segment including Windows systems will be approximately US$12.6 billion, lower than the market consensus of US$13.7 billion. The implied operating profit margin for this new quarter also fell short of expectations.
Microsoft Chief Financial Officer Amy Hood said the performance of the cloud business could have been better if the company had allocated more of its data center infrastructure to customers instead of prioritizing internal needs.
She said: “If I deployed all the newly launched graphics processors in the first and second quarters of this year to Azure cloud services, the growth rate of this key performance indicator could exceed 40%.”
Melius Research analyst Ben Leitz, who has a buy rating on Microsoft stock, said on Thursday that Microsoft should increase its efforts in building data centers.
He said: "I think there are currently execution-level problems in the Azure cloud business, and the company really needs to speed up the construction of data centers."
A team of UBS analysts headed by Karl Kosted questioned Microsoft's computing power allocation decision - the company prioritizes artificial intelligence computing power for products such as Microsoft 365 Smart Assistant, and the market performance of this office software's additional functions is far less than that of OpenAI's chat robot ChatGPT.
UBS analysts wrote in the report: "Affected by the smart assistant business, Microsoft 365's revenue growth has not increased. Multiple surveys show that the growth in usage of this feature is weak (we plan to re-conduct the survey to confirm whether we have missed any relevant signs of its usage growth); in addition, the large model market is currently fiercely competitive and is a capital-intensive track. We believe that Microsoft needs to prove that these investments are valuable."
Wall Street is not entirely bearish on Microsoft. Bernstein's analyst team, led by Mark Modler, gave Microsoft the equivalent of a buy rating, and they approved of Microsoft's decision.
The team said in a research report on Thursday: "We believe that investors need to understand that Microsoft management has made a well-thought-out decision to put the company's long-term development interests first, rather than to push up the stock price this quarter or even in the next few quarters (the computing power bottleneck problem is expected to gradually ease)."
Amy Hood said the company's capital expenditures will fall slightly this quarter.