Topline
Microsoft’s third calendar quarter earnings were the most robust in the company’s five-decade history, though the Washington-based computing colossus indicated it may get less of a bump from the next generation of technological innovation in generative artificial intelligence moving forward.
Key Facts
In its earnings report released Wednesday afternoon, Microsoft reported record $3.30 earnings per share and net income of $24.7 billion, beating average analyst forecasts of $3.10 EPS and $23.2 billion net profit, according to FactSet.
The firm brought in $65.6 billion in revenue for the three-month period ending Sept. 30, besting estimates of $64.6 billion and the prior quarter’s record $64.7 billion.
Sales in Microsoft’s cloud computing service Azure grew 34% year-over-year on a constant currency basis, also crushing projections of 30.7% growth for Azure, the most public-facing generative AI initiative for Microsoft.
But Microsoft shares dipped about 5.5% by 11 a.m. EDT Thursday, reversing an initial gain and pacing toward its worst day on Wall Street since Oct. 2022.
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The selloff traces to Microsoft management’s more tepid guidance for the final quarter of 2024, as the company said it expects year-over-year growth for Azure to slow to 31% to 32% and for 18% to 20% growth in its AI-heavy intelligent cloud segment on a constant currency basis, down from 21% in the quarter ending last month, as well as anticipated operating losses from OpenAI, the Microsoft-backed startup behind generative AI chatbot ChatGPT.
The Microsoft stock losses weighed on broader indexes, with the S&P 500 and tech-concentrated Nasdaq each down about 0.7%.
Big Number
$180 billion. That’s about how much market capitalization Microsoft lost Thursday morning, roughly the equivalent of Disney’s total valuation.
Key Background
Microsoft’s report was the latest in a crowded week for earnings, following Google’s Tuesday release and frontrunning Thursday afternoon reports from fellow tech titans Amazon and Apple. The first quarter of Microsoft’s 2025 fiscal year, this quarter was also the first since Microsoft adjusted how it reports its business segment performance, a shuffle analysts say should better reflect the competition between Azure and rival enterprise cloud computing service Amazon Web Services. But it’s a change which Bernstein analyst Mark Shmulik predicted may cause “confusion” among investors following this report as expectations recalibrate for Microsoft’s wide-spanning businesses. For example, Microsoft reported $24.1 billion in revenue for its intelligent cloud unit last quarter, a year-over-year decline for that segment despite more than 30% growth for the unit’s signature Azure offering. Microsoft is one of the most profitable companies in the world, with its $88 billion in net income during its most recent fiscal year trailing only Apple and Berkshire Hathaway among U.S. companies. Microsoft stock was up 87% over the last two years through Wednesday’s close, outgaining the S&P 500 and rival Apple at 54% and 50%, respectively, according to FactSet data including reinvested dividends.
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