Redmond, Washington: Microsoft’s stock fell 4.5% in after-hours trading on Wednesday after the company forecast slower growth in its cloud computing business, raising concerns about AI monetization, rising costs, and competition from cheaper Chinese AI models.
Despite beating overall revenue estimates, Microsoft’s Azure cloud division reported 31% revenue growth, missing Wall Street’s expectation of 31.8%. The company expects 31-32% growth in the next quarter, below the 33% analysts predicted, according to Visible Alpha data.
Investors are increasingly frustrated that Microsoft and other tech giants are spending billions on AI infrastructure but have yet to show significant financial returns.
Chinese AI Competition Sparks Price War Concerns
Chinese firms have recently launched AI models at lower costs, increasing pressure on U.S. tech giants. DeepSeek, a rising AI model from China, has gained attention and forced Microsoft to include it in Azure’s offerings.
Microsoft CEO Satya Nadella acknowledged competition but emphasized efficiency:
“As AI becomes more efficient and accessible, we will see exponentially more demand.”
Nadella also noted that Microsoft is optimizing AI models to lower costs, similar to previous GPT model pricing reductions in collaboration with OpenAI.
KSE-100 Index Rebounds, Gains Over 1,700 Points on Strong Buying
Heavy AI Investments Continue
Microsoft spent $22.6 billion on capital expenditures, exceeding analysts’ estimates of $20.95 billion. The company is building AI data centers to support its growing AI ambitions.
Microsoft remains a top AI player, but its stock has gained only 8% this year, trailing Alphabet’s 29% and Amazon’s 50% surge.
Revenue and Profits Beat Estimates
- Intelligent Cloud revenue: $25.54 billion (missed $25.76 billion expectations).
- Total revenue: $69.6 billion, beating estimates of $68.78 billion.
- Earnings per share: $3.23, exceeding expectations of $3.11.
Big AI Contracts with OpenAI Drive Growth
Microsoft reported 67% growth in commercial bookings, driven by major Azure contracts with OpenAI. Despite OpenAI’s recent deal with Oracle, Microsoft remains the primary host for OpenAI’s commercial models.
Investors now seek clearer AI revenue strategies as Microsoft navigates rising costs, AI competition, and cloud market challenges.
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