Microsoft Corporation (NASDAQ:MSFT) stock fell 6% intra-day today after the tech giant provided a weaker-than-expected growth outlook for its Azure cloud division. Investors also weighed comments from executives on the potential impact of emerging low-cost AI models from China.
In its fiscal second quarter, Azure and other cloud services saw revenue climb 31% year-over-year, slowing slightly from the 33% growth recorded in the prior quarter and falling just short of analyst expectations of 31.9%. Artificial intelligence contributed approximately 13% of this expansion.
For the fiscal third quarter, CFO Amy Hood projected Azure’s growth to range between 31% and 32%, underwhelming analysts who had been expecting a 33% increase.
Despite the modest cloud slowdown, Microsoft’s AI business has seen rapid expansion, surpassing an annual revenue run rate of $13 billion, reflecting a 175% increase year-over-year. The company emphasized its focus on balancing financial discipline with continued investments in cloud and AI infrastructure.
Meanwhile, the rise of DeepSeek, a Chinese AI startup offering a model that rivals OpenAI’s ChatGPT at a fraction of the cost, was a key topic of discussion. DeepSeek claims its model was built with significantly less-advanced chips for just $6 million, raising questions about the future of AI infrastructure investments.
For the quarter, Microsoft reported earnings of $3.23 per share on revenue of $69.63 billion, exceeding Wall Street estimates of $3.13 per share on $68.92 billion in revenue. However, concerns over Azure’s slowing growth and competitive pressures in AI tempered investor sentiment.