Microsoft shares were down in the US premarket after the tech company released its Q1 results, which beat expectations but made investors reconsider the company’s outlook.
Q1 results were robuts. EPS came in at $3.30 against $3.10 expectations and revenue was $65.59 billion versus $64.51 billion analyst expectations. This should have been enough to drive a pop in the stock.
However, weak guidance drove investors to hit the sell button and shares slipped over 3% in the US premarket.
“Microsoft hasn’t been the hottest stock of late, and heading into earnings, it was cloud growth that was under the microscope,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“Growth of 33% for Azure, its cloud computing platform, looked like a strong number, and when you add in the 12% contribution from AI, it continues to support the argument that the major cloud providers are well-placed to benefit from the new AI demand cycle.
“The downbeat stock reaction is likely due to guidance given on the call. Margins are expected to come under pressure next quarter as the ramp-up in AI spending hits the cost line, and with Azure growth expected at 31-32%, that would mark a slowdown quarter-on-quarter.”
Investors may also be concerned about huge ongoing investments in AI. Microsoft is a major player in the AI revolution through their investment in OpenAI, but the amount of cash being poured into pursuing building out the technology will be seen as a negative by some.