Stock posts steepest daily drop since 2020
Microsoft shares fell about 10% on Thursday after the company reported quarterly results that disappointed some investors, marking the stock’s sharpest one-day decline since March 2020. The selloff wiped roughly $357 billion from Microsoft’s market capitalization, leaving it at $3.22 trillion by the close of trading.
The broader technology sector also came under pressure. The iShares Expanded Tech-Software Sector ETF dropped 5%, while the Nasdaq Composite ended the session down 0.7%. Not all technology stocks declined, however, as Meta shares jumped 10% following stronger-than-expected results and upbeat guidance.
Cloud growth and guidance raise concerns
Investor focus centered on Microsoft’s cloud performance and forward outlook. Growth in Azure and other cloud services came in at 39%, slightly below the 39.4% consensus estimate compiled by StreetAccount. In addition, Microsoft projected fiscal third-quarter revenue of about $12.6 billion for its More Personal Computing segment, which includes Windows, short of the $13.7 billion analysts had expected.
The implied operating margin for the upcoming quarter also missed expectations, adding to investor unease.
Infrastructure constraints under scrutiny
Chief Financial Officer Amy Hood said Azure’s growth could have been higher if more newly available data center capacity had been allocated to external customers instead of internal needs.
She noted that if the GPUs that came online in recent quarters had been fully dedicated to Azure, cloud growth would have exceeded 40%.
Some analysts echoed those concerns. Ben Reitzes of Melius Research said Microsoft needs to accelerate data center construction to address execution issues within Azure and better meet customer demand.
AI strategy draws mixed reactions
Analysts at UBS questioned Microsoft’s decision to reserve large amounts of artificial intelligence computing capacity for products such as Microsoft 365 Copilot, arguing that adoption has not yet ramped up meaningfully. They said the AI software market appears crowded and capital-intensive, and that Microsoft still needs to demonstrate strong returns on these investments.
Other analysts took a more supportive view. Bernstein analysts said Microsoft’s management prioritized long-term strategy over short-term financial optics, even if that decision weighed on near-term results.
Capital spending outlook
Hood said capital expenditures are expected to decline slightly in the current quarter, signaling a potential moderation in spending after heavy investment in AI and data center infrastructure.
