Microsoft Stock Dips Amid Cloud Growth Slowdown.

Microsoft's shares dropped by up to 7% in extended trading on Tuesday. This happened despite the company reporting better-than-expected earnings and revenue. Investors were concerned about weaker-than-expected results in the cloud segment. However, executives offered a hopeful outlook, predicting faster cloud growth in the first half of 2025.

In the fiscal fourth quarter, which ended on June 30, Microsoft's revenue increased by 15% year-over-year, reaching $56.19 billion. The company also reported a net income of $22.04 billion, up from $20.08 billion the previous year.

For the upcoming fiscal first quarter, Microsoft expects revenue between $63.8 billion and $64.8 billion, which suggests a growth of 13.8% at the midpoint. Analysts had expected a slightly higher revenue of $65.24 billion. The company also forecasted operating expenses around $15.25 billion, below the analyst expectation of $16.10 billion.

The Intelligent Cloud segment, Microsoft's largest, brought in $28.52 billion in revenue, including Azure, Windows Server, Nuance, and GitHub. This was a 19% increase but slightly below the expected $28.68 billion. GitHub's revenue has now surpassed $2 billion annually, according to CEO Satya Nadella.

Revenue from Azure and other cloud services grew by 29% during the quarter. Analysts had expected a 31% growth. It's notable that this is the first time since 2022 that Azure's growth has fallen short of analyst expectations. Microsoft does not disclose the exact revenue figures for this category.

Comparatively, Google parent Alphabet reported a 29% revenue increase in its cloud business, which includes Workspace and Google Cloud Platform.

Microsoft's cloud division is crucial to Wall Street because the company competes with Amazon Web Services and Google for AI workloads. All three companies are investing heavily in AI to attract startups and large businesses as AI technology advances. For Amazon, AWS has been a major profit source for over a decade.

Out of the 29% growth in Azure and other cloud services, 8 percentage points came from AI services. Nadella noted, "Our share gains accelerated this year driven by AI." However, Amy Hood, Microsoft's finance chief, mentioned that demand for Azure AI services was higher than the available capacity, especially in some parts of Europe.

Looking ahead, Microsoft expects Azure revenue growth of 28% to 29% in constant currency for the fiscal second quarter, with even faster growth in the second half of the fiscal year. Analysts were anticipating a 30.6% growth for Azure in the second quarter.