Microsoft stock slips as cloud growth misses estimates in Q4; analysts weigh in

Investing.com – Microsoft shares slipped after its fourth-quarter cloud revenue growth fell short of Wall Street estimates even as the tech giant ramped up spending on investments to boost growth.

Microsoft Corporation (NASDAQ:MSFT) fell around 1.7% after the market opening bell on Wednesday.

The company announced earnings per share of $2.95 on revenue of $64.7 billion. Analysts polled by Investing.com anticipated EPS of $2.94 on revenue of $64.38B.

Azure, Microsoft’s cloud business grew 29%, missing analyst estimates of 30.2%. That also marked a slowdown from 31% growth seen in Q3. Azure is widely viewed as a barometer for AI demand. AI-related growth accounted for about 8% of Azure’s total growth, up from 7% in Q3.

Signs of slowing cloud growth come even as Microsoft continues to ramp up investments, with capital spending jumping to $19B in Q4, up from $14B in Q3, and nearly double the $10.7B seen in Q4 a year ago. 

Commercial bookings jumped 17% year-over-year and came in significantly ahead of expectations.

Despite the miss, analysts at Jefferies reiterated a Top Pick rating on MSFT, saying the company “remains in pole position for the AI marathon.”

“Positively, MSFT expects Azure’s growth to accelerate in 2H as more capacity comes online to serve AI demand,” they noted.

Separately, Guggenheim analysts said Microsoft’s expectations of Azure reacceleration three quarters from now “seems to have calmed investor concerns after hours.”

However, investors “should ask themselves a simple question: How can they trust management to predict what will happen 6-12 months from now if they have trouble forecasting the next 0-2 months,” the investment firm added, reiterating a Neutral rating on Microsoft stock. 

Revenue in productivity and business processes rose 11% to $20.3B as official commercial products and cloud services revenue climbed 12%. Revenue in more personal computing was up 3% to $11 billion, with Windows revenue up 7%.

“Shares traded lower after hours following Intelligent Cloud segment revenue missing consensus, as Azure growth decelerated 1 point, missing buyside expectations and coming in at the low end of guidance,” RBC said in a note following the results.

Meanwhile, in their own post-earnings note, Citi analysts said MSFT’s Q4 print “offered something for everyone.” 

“The smaller beat and softer guide imply slight negative near-term estimate revision trends, which could weigh on shares tomorrow, but we believe the weakness will be short-lived with leading indicators offering confidence in a 2H acceleration in Azure, and a margin outlook(-100 bps) that looks conservative,” they added.

The Wall Street firm trimmed its Microsoft stock price target from $520 to $500 to account for near-term headwinds. 

Yasin Ebrahim contributed to this report.