Microsoft is taking a pounding in the stock market.
On Thursday, the Redmont giant’s share price collapsed by nearly 12 percent after it released its latest quarterly results, making it not only its biggest single day slide since March 2020, according to Bloomberg, but also one of the worst drops in the company’s history.
The Wile E. Coyote-worthy cliff-plunge, which wiped out over $400 billion in valuation, was despite Microsoft actually exceeding some key expectations, including its net income, which rose by 23 percent from the same period the year before to nearly $31 billion. Revenue also increased by 17 percent to $81.3 billion, which is about a billion more than what analysts projected.
But Microsoft’s AI spending spree has investors second-guessing its direction, and it’s striking that the lack of faith was strong enough to precipitate a historic plunge even with respectable financial growth. Overall, its total capital expenditures grew by 66 percent to a record $37.5 billion in Q4, as the company continues to splurge on building AI data centers for its Azure cloud computing business.
Azure reported a 38 percent bump in revenue, which is slightly slower than the year before, adding to investor uncertainty over whether the business will be able to reap back the tens of billions spent on its data centers. In December, The Information reported that Azure was struggling to sell the company’s autonomous “AI agents” to its business customers, with quotas being slashed by up to 50 percent.
Some analysts had predicted the stock drop, citing the uncertainty over Microsoft’s AI spending.
“Since it is becoming even more evident that Microsoft is not going to garner a strong ROI from their massive AI investment, their shares need to be revalued back down to a level that is more consistent with its historic fair value,” Matthew Maley, chief market strategist at Miller Tabak + Co, told Bloomberg before markets opened on Thursday.
In the latest earnings, Microsoft boasted it had more than $625 billion in contracts for its cloud business that it still needed to fulfill. Nearly half of that, though — a colossal $350 billion — is from OpenAI, raising concerns that it may be putting too many eggs in one basket. It also draws attention to how Microsoft has struggled to make an impact with its own AI products like its Copilot assistant, which was heavily based on OpenAI’s tech, and which many enthusiasts perceive as an inferior version of ChatGPT. Microsoft 365 Copilot, the business-focused version of its chatbot integrated into its apps like Word, had 15 million annual users, the company just revealed.
“As an investor, when you think about our capex, don’t just think about Azure, think about Copilot,” CEO Satya Nadella said on a call with analysts, as quoted by the Financial Times. “We don’t want to maximize just one business of ours. We want to be able to allocate capacity, while we are supply constrained, that allows us to build the best portfolio.”
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