Microsoft shares declined by 6% in extended trading following the company’s report of slowing cloud growth. For the fiscal second quarter ending December 31, Microsoft reported adjusted earnings per share of $4.14, surpassing the expected $3.97, and revenue of $81.27 billion, which also exceeded the forecast of $80.27 billion. However, the company projected fiscal third-quarter revenue between $80.65 billion and $81.75 billion, aligning closely with the consensus of $81.19 billion.
The company’s revenue grew by 16.7% year over year, with net income reaching $38.46 billion compared to $24.11 billion the previous year. Revenue from Azure and cloud services increased by 39%, just below the expected growth rate of 39.4% from analysts.
Microsoft’s gross margin was recorded at just over 68%, the narrowest in three years. The company detailed a significant increase in its commercial remaining performance obligation, reaching $625 billion, a 110% rise, primarily attributed to OpenAI’s $250 billion cloud commitment.
In its earnings report, Microsoft highlighted that 45% of its commercial remaining performance obligation is tied to OpenAI, raising questions from analysts about its financial responsibilities. Additionally, commercial bookings increased by 230%, up from 112% in the previous quarter.
Segment performance varied, with the Intelligent Cloud segment generating $32.91 billion in revenue and the Productivity and Business Processing segment contributing $34.12 billion. However, the More Personal Computing segment, which includes Windows and Xbox, saw a revenue decline of about 3%.
Microsoft’s capital expenditures and finance leases reached $37.5 billion, exceeding expectations. In the face of strong customer demand, the company aims to align supply with growing Azure needs while also expanding research and development efforts.
Despite these developments, Microsoft stock has fallen approximately 11% over the past three months while the S&P 500 index has risen by 1%, as investors consider risks associated with generative AI impacting the growth of traditional software.
Source: Reported based on publicly available information from www.cnbc.com.
