Microsoft Stock Drops as Cloud Growth and AI Costs Disappoint

Published at: January 30, 2025 6:36 AM

Updated at: January 31, 2025 7:51 AM

Microsoft's cloud computing business is facing slower growth, causing its stock to drop 4.5% in after-hours trading. Investors are concerned about high spending, uncertain profits from artificial intelligence, and increasing competition.

In the last quarter, Microsoft's Azure cloud platform grew by 31%, which was slightly below expectations. Even though the company exceeded overall sales estimates, investors are looking for stronger returns on the large amounts of money being spent on AI development.

CEO Satya Nadella reassured investors that costs are improving, with AI models becoming more efficient. He expects demand to increase as AI becomes more accessible. Meanwhile, CFO Amy Hood predicted that Azure would grow between 31% and 32% in the next quarter, slightly below Wall Street's expectations.

Microsoft’s capital expenses reached $22.6 billion, higher than analysts’ estimates. The company continues to invest heavily in AI infrastructure, working on software improvements to make services more cost-effective.

Despite these challenges, Microsoft remains a strong player in AI. Its stock has risen about 8% over the past year, and it continues to secure large cloud contracts. Revenue from its Intelligent Cloud division reached $25.54 billion, slightly missing estimates. However, overall revenue grew 12% to $69.6 billion, with a profit of $3.23 per share, beating expectations.