Jamie Spencer
Microsoft shares tumbled more than 6% on Thursday after issuing weaker-than-expected current-quarter guidance. The stock was on pace for its worst day in more than two years.
The decline followed the company’s fiscal second-quarter earnings, which exceeded Wall Street expectations. Microsoft reported $3.23 per share on $69.63 billion in revenue, surpassing analyst forecasts of $3.11 EPS and $68.78 billion in revenue, according to LSEG.
Weak Outlook Weighs on Shares
Despite beating estimates, Microsoft’s revenue guidance for the current quarter disappointed investors. Chief Financial Officer Amy Hood projected revenues between $67.7 billion and $68.7 billion, below the $69.78 billion expected by analysts. Microsoft’s 12.3% year-over-year revenue growth was also the slowest since mid-2023.
Adding to concerns, the company reported a slowdown in Azure and cloud services growth. The segment expanded 31%, a decline from the 33% growth seen in the prior quarter.
Wall Street Stays Optimistic
Despite the weaker guidance, many Wall Street analysts remain bullish on Microsoft. Goldman Sachs analyst Kash Rangan called the company “well-positioned” to benefit from AI adoption and one of the most compelling investment opportunities in the industry.
Similarly, Bernstein’s Mark Moerdler stated that Microsoft has demonstrated its ability to drive both a cloud business and a leading AI business. He emphasized that Microsoft must now focus on growing its core Azure business independently of AI.
DeepSeek’s Impact on AI Market
Microsoft’s stock had already dipped 2% earlier in the week as part of a broader tech sector sell-off. The drop came after reports that Chinese startup DeepSeek had trained an open-source AI model at a fraction of the cost of competing U.S. products.
During the earnings call, CEO Satya Nadella confirmed that DeepSeek’s AI model, R1, is now available on GitHub and Microsoft’s Azure AI Foundry. He also stated that the model would eventually be accessible on Copilot+ PCs.
Other Tech Stocks Rebound
While Microsoft struggled, other major tech companies saw gains. Meta Platforms jumped nearly 4% after reporting strong results, while Tesla edged higher despite missing estimates. Meanwhile, IBM surged 14% on robust software growth driven by AI demand.
Microsoft’s weaker guidance and slowing cloud growth rattled investors, but analysts remain confident in its long-term AI strategy. With rising competition from DeepSeek and shifting AI economics, Microsoft’s ability to navigate these challenges will be closely watched.
