Microsoft Stock Drops 5% Due to Weak Revenue Outlook

On January 22, 2025, Microsoft faced a significant drop in its stock prices, falling about 5% after reporting a disappointing revenue outlook. Despite surpassing expectations for its fiscal second-quarter earnings, the company's future guidance led to this decline.

In their latest financial report, Microsoft announced earnings of $3.23 per share on a revenue of $69.63 billion. These numbers exceeded Wall Street predictions, which estimated earnings of $3.11 per share and $68.78 billion in revenue.

However, the optimism was short-lived as Microsoft’s Chief Financial Officer, Amy Hood, indicated that the company anticipates revenues for the current quarter to range between $67.7 billion and $68.7 billion. This forecast is below the expected $69.78 billion according to analysts at LSEG. The revenue growth of 12.3% year-over-year has also been noted as the slowest growth rate since mid-2023.

The slowdown affects Microsoft's cloud services as well, particularly in its Azure segment, which registered a growth of 31%. This represents a decrease from the 33% growth rate reported in the previous quarter.

Despite the tepid guidance and the slowdown in Azure growth, several analysts on Wall Street maintained their positive outlook on Microsoft. For instance, Goldman Sachs analyst Kash Rangan described Microsoft as "well-positioned" to capitalize on the growing adoption of artificial intelligence (AI) and one of the industry's "most compelling investment opportunities."

Bernstein's analyst Mark Moerdler noted that Microsoft has demonstrated its capability to manage a successful cloud business while also building a substantial AI business. He suggested that the management should focus on the core Azure business, separate from AI initiatives.

Earlier in the week, Microsoft's shares had already slipped by 2% during a broader tech sector selloff. This decline coincided with concerns about the developments from DeepSeek, a Chinese startup that has reportedly trained its open-source AI model at much lower costs than competing American products.

During the earnings call, Microsoft CEO Satya Nadella mentioned that DeepSeek's latest AI model, R1, is now available through GitHub and will eventually be accessible on Copilot+ equipped PCs.

In contrast to Microsoft’s decline, other technology stocks enjoyed positive movement on Thursday's trading session. Meta Platforms saw a nearly 4% increase following strong earnings, while Tesla's stock edged up despite falling short of expectations and reporting a decrease in automotive revenue. IBM's shares surged 14% due to robust results and significant growth in its software sector, fueled by increasing demand for AI solutions.

Microsoft, Stock, Guidance