Microsoft Stock Slumps, Weighing on Big Tech Shares, on Disappointing Forecast

Key Takeaways

• Microsoft stock slumped on Thursday after the company’s current-quarter revenue outlook fell short of Wall Street estimates, overshadowing a better-than-expected fiscal first quarter.
• Growth as Microsoft’s cloud-computing unit is expected to slow this quarter as the company continues to struggle to meet surging AI demand.
• Analysts remained bullish on the stock, citing an expected reacceleration of cloud growth.

Shares of Microsoft (MSFT) slid on Thursday after the company’s revenue forecast fell short of Wall Street’s estimates and the cloud computing giant struggles to meet demand. 

Shares were down nearly 6% Thursday morning, weighing on the shares of some of its Big Tech peers. The slump slashed the stock’s year-to-date gain—once as high as 24%—to just 8%.

Microsoft on Wednesday forecast revenue at its Intelligent Cloud division would grow 18% to 20% in the current quarter, below analysts’ estimates. Growth of Azure, its cloud-computing platform, is expected to come in around 31% or 32%, a deceleration from the most recent quarter and slightly slower than Wall Street expected. The disappointing forecast overshadowed the company’s fiscal first-quarter results, which broadly exceeded expectations. 

Microsoft has struggled to meet surging AI demand, a difficulty executives expect to persist in the current quarter. CFO Amy Hood on the company’s earnings call expressed confidence that growth would pick up in the first half of next year as more cloud computing capacity came online.

What Analysts Thought of Microsoft’s Earnings

Analysts on Thursday were sanguine about the outlook. They pointed to comments from executives indicating demand for AI services remains strong, and that the company’s increased spending on AI infrastructure should help it to meet that demand in the future. 

“While the Q2 Azure outlook is disappointing, underlying trends such as large deal volume validate that demand is not the issue,” wrote BofA analysts in a note to clients on Thursday. They maintained their “Buy” rating of the stock and their $510 price target. 

Jefferies analysts also reiterated their “Buy” rating and $550 price target. “We remain confident on MSFT as an AI winner,” the analysts wrote. 

Microsoft Weighs on Big Tech Stocks

Microsoft’s results were weighing on the stocks of tech peers on Thursday. Amazon (AMZN) was down more than 2% Thursday morning, while AI chip giant Nvidia (NVDA) shed nearly 4%. Oracle (ORCL), another AI-focused cloud computing provider, was down about 3%. 

Meta (META) shares were down more than 2% after the company lifted the lower end of its full-year capital expenditures (CapEx) forecast as it ramps up spending on AI. Worries about excessive spending on AI infrastructure weighed on mega-cap tech stocks during the last round of earnings reports in July.

Surging CapEx will likely remain a focus for Wall Street when Amazon reports results after the closing bell on Thursday.