"Microsoft saw its biggest one-day decline since the Covid crash on Thursday. Headline figures were great. Adjusted earnings of $4.14 easily topped Wall Street's estimates. Revenue also topped expectations. So, why did shares crash the next day? Azure growth came in at 39% with a forecast for similar growth rates next quarter. That came in slightly below Wall Street's forecasts. Widely followed independent researchers such as Semi Analysis had forecast Microsoft seeing Azure growth rates that could reach as high as 54% in late calendar 2026. Investors see Azure as Microsoft's future, and now the company is underperforming lofty growth expectations that have been building across Wall Street."
"The unfortunate reality is that Microsoft is now facing a kind of "prisoner's dilemma." If it uses compute capacity for its own products, it takes away from Azure's growth. Yet, if it devotes more compute to Azure it risks lower growth in Copilot and its valuable franchises such as its Office suite getting disrupted by the very companies its renting Azure capacity to."
Three mega-cap tech companies reported earnings with divergent market reactions. Microsoft beat adjusted earnings and revenue estimates but shares plunged after Azure growth came in at 39%, slightly below Wall Street forecasts and far beneath some independent analyst projections. Azure faces capacity constraints after reduced AI spending in early 2025, creating a tradeoff between using compute for Microsoft products and dedicating capacity to Azure customers. Meta outperformed expectations and rallied, while Tesla reported significantly lower profits year-over-year yet maintained investor focus on long-term robotaxi prospects.
Read at 24/7 Wall St.
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