Microsoft's AI Bet Faces Scrutiny After Earnings Dip, But Wall Street Sees 40% Upside
REDMOND, Wash. — Microsoft Corp. (NASDAQ: MSFT) shares tumbled more than 12% on Thursday, a stark contrast to the blockbuster revenue and profit figures the tech giant reported just a day earlier. The sell-off, which erased billions in market value, highlights the market's heightened sensitivity to growth trajectories and spending levels in the artificial intelligence arena.
On the surface, Microsoft's quarterly results were formidable. Revenue surged 17% to $81.3 billion, while net income skyrocketed 60% to $38.5 billion, or $5.16 per share—handily surpassing analyst expectations. Its cloud computing division, the company's financial engine, surpassed $50 billion in quarterly revenue for the first time, growing 26% year-over-year.
Yet, investors zeroed in on two nuanced data points. Growth for the Azure cloud platform, a key beneficiary of the AI boom, decelerated slightly to 39% from 40% in the prior quarter. More jarring was a record $37.5 billion in capital expenditures—a 66% year-over-year leap—with leadership attributing roughly two-thirds to building out AI infrastructure like GPUs and CPUs.
"The market is asking a simple question: where's the immediate payoff?" said David Chen, a portfolio manager at Horizon Capital. "When you pair soaring capex with even a marginal slowdown in Azure's growth rate, it triggers a reassessment of AI's near-term profitability."
Despite the knee-jerk sell-off, Wall Street's long-term conviction appears unshaken. An overwhelming majority of analysts maintain Buy ratings on the stock. While several firms trimmed their price targets post-earnings, the median target still implies a potential upside of over 40% in the next twelve months, positioning Microsoft as the top expected performer among the so-called "Magnificent Seven" tech stocks.
"This is classic market myopia," argued Sarah Jennings, a senior tech analyst at Broadview Research. "Microsoft is building the foundational infrastructure for the next decade of AI. The capex is not an expense; it's an investment in a future moat. The dip is a buying opportunity for patient investors."
A more skeptical view came from Marcus Thorne, an independent financial blogger known for his critical takes. "It's a massive cash burn camouflaged as 'strategic investment,'" he wrote in a reaction post. "Azure growth is slowing while spending goes parabolic. Wall Street is giving them a free pass on metrics that would sink any other company. The emperor's new AI clothes are looking threadbare."
Retail investor Priya Sharma shared a common sentiment among individual shareholders: "It's confusing. The headlines say 'record profits,' but the stock tanks. It makes you wonder if the AI story is getting too expensive to believe in the short term. But I'm holding—it's still Microsoft."
The coming quarters will be critical for Microsoft to demonstrate that its unprecedented AI investments can translate into accelerating, profitable growth and justify Wall Street's continued faith.