Microsoft's stock experienced its worst single-day decline since the pandemic, dropping nearly 12% on Thursday after releasing its latest quarterly results. The plunge, which erased over $400 billion in market value, came despite the company exceeding some financial expectations, including a 23% increase in net income to nearly $31 billion and a 17% revenue rise to $81.3 billion—slightly above analyst projections.
The sharp decline was driven by investor concerns over Microsoft's aggressive AI spending. The company's capital expenditures surged 66% to $37.5 billion in Q4, primarily due to investments in AI data centers for its Azure cloud computing business. While Azure revenue grew 38%, down from the previous year's pace, some analysts questioned whether the company would achieve a strong return on its massive AI investments.
Microsoft's CFO, Amy Hood, noted that the cloud business could have performed better if more data center infrastructure had been allocated to customer needs rather than internal priorities. The company also forecasted lower-than-expected revenue for its More Personal Computing segment, which includes Windows, at $12.6 billion for the third quarter—below the $13.7 billion consensus.
Analysts had anticipated the stock drop, citing uncertainty over Microsoft's AI strategy. Matthew Maley, chief market strategist at Miller Tabak + Co, suggested that Microsoft's shares needed revaluation due to doubts about the ROI from its AI investments. Meanwhile, Meta's stock rose 8% despite reporting similar AI spending, highlighting divergent investor reactions to tech giants' AI investments.