Microsoft share sank in the US after-market following the release of quarterly earnings that beat analyst consensus estimates but didn’t wow increasingly sceptical Wall Street traders.
Microsoft headline earnings came in better than expected, with revenue and EPS beating estimates. However, expectations were high going into the results, and shares fell in the after-market as investors reacted to disappointing cloud revenue that narrowly missed estimates.
“For the quarter, Microsoft reported earnings per share of $2.95 on revenue of $64.7 billion,” said Amish Patel, Head of Equity Research at Charles Stanley.
“Wall Street was anticipating EPS of $2.94 on revenue of $64.5 billion, according to data compiled by Bloomberg. Microsoft reported EPS of $2.69 and revenue of $56.2 billion during the same period last year.
“Microsoft’s overall Cloud revenue came in at $36.8 billion, in line with expectations of $36.8 billion, but the company’s Intelligent Cloud revenue, which includes its Azure services, fell short, coming in at $28.5 billion versus expectations of $28.7 billion.”
Patel continued to explain that the market was focusing on the cloud business as an indicator of growth in Microsoft’s AI business and suggested patience is required for this area of the business to flourish. However, patience is in short supply after sharp declines in tech share of late.
“Shares are trading 6% lower as investors were hoping for an acceleration in cloud growth driven by AI investments. Ultimately, the payoff from AI investments will take time and we continue to believe Microsoft remains well placed to benefit from AI adoption,” Patel said.
The drop in shares represents elevated expectations for tech companies, signalling an earnings beat is not enough to satisfy investors who seemingly want to see tech smash earnings estimates.