Microsoft (MSFT), a leader in the burgeoning field of artificial intelligence (AI), has not seen its stock performance – last trading at $435.50 – reflect the excitement around AI in recent times. Over the past year, Microsoft’s shares have only increased by less than 7%, significantly underperforming compared to other U.S. tech megacap companies. Apple (AAPL), Alphabet (GOOG, GOOGL), and other tech giants have posted significantly higher gains, with Tesla (TSLA) and Meta (META) leading the pack at 107% and 65% increases, respectively. Meanwhile, Microsoft has underperformed compared to the tech-heavy Nasdaq Composite (COMP), which is up 24% over the same period.
As Microsoft prepares to release its quarterly earnings report, investors are particularly focused on the performance of Azure, its cloud-computing platform. Azure has been a critical component of Microsoft’s strategy, especially in the context of AI and cloud services. However, in previous updates, Microsoft highlighted supply constraints due to delays from a third-party provider, leading to cautious growth forecasts for Azure. CFO Amy Hood projected a growth rate for Azure of 31% to 32% at constant currency for the December quarter, a slight decrease from the previous period, which was met with a 6% drop in stock price the following day.
Despite these challenges, Azure has shown a modest increase in growth rate since late 2023, though not as robust as its competitors like Amazon Web Services and Google Cloud, which have seen more significant acceleration. This contrast is noteworthy given Microsoft’s substantial capital expenditures aimed at supporting cloud and AI infrastructure, now reaching into tens of billions quarterly.
The broader context for Microsoft includes not just cloud computing but also its extensive involvement in other markets. However, the cloud sector remains a focal point for investors due to its size and growth potential as businesses increasingly shift towards cloud solutions for data management and AI applications.
For the upcoming earnings, expectations, as per CNBC, are set for Microsoft to report an 11% year-over-year revenue increase to $68.8 billion, which would be the slowest growth rate since mid-2023. Earnings per share are anticipated to rise to $3.11 from $2.93 a year earlier. And by the way, FY 2023 was a year where Microsoft’s stock rose over 50%, largely fueled by its strategic partnership with OpenAI, the creator of ChatGPT, which has been pivotal in Microsoft’s AI strategy. The software giant’s investment in OpenAI, amounting to nearly $14 billion, has positioned it at the forefront of the generative AI market, although translating that investment into stock performance has been less straightforward than expected.
The narrative for Microsoft involves balancing the high expectations set by its AI initiatives with the practical realities of cloud infrastructure growth, market competition, and investor sentiment. As it kicks off the tech earnings season alongside other giants like Meta and Tesla, Microsoft’s performance will be scrutinized not only for its financials but for signs of how it is navigating the AI boom to secure a stronger position in the tech landscape.
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