Microsoft’s shares drop 7% or $219 billion USD in value.
👉 Background: Microsoft is famous for its Microsoft Office Suite and more recently for making the big switch into cloud and AI, which they have done so VERY successfully. In fact, its shares have jumped over 50% over the past two years.
👉 What happened: Microsoft has just released its quarterly results, which spooked investors a fair bit. After reporting revenue up 15% and earnings per share well ahead of forecast, it reported only a 29% growth in its Azure cloud computing unit - when it was projected to grow 31%.
👉 What else: Next minute: Microsoft’s shares drop 7% or $219 billion USD in value. But apart from missing its cloud growth target, Microsoft investors are concerned that it's spending a pretty penny on its AI capabilities.
💡When exorbitant spending doesn’t turn into exorbitant revenue, it can create doubts in a company’s biggest believers.
💡 Microsoft invested $US19 billion in the June quarter into capital expenditure related to AI and spent over $US55 billion in FY24.
💡But for many investors, AI spending just isn’t converting into AI earnings fast enough. In fact, Microsoft's AI revenue isn't material enough to be disclosed in their financial results! So the AI spending of Microsoft, Amazon, Google and Meta are on watch by investors.
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