Microsoft Q4 FY24 Earnings Report

Microsoft (MSFT) just reported its Q4 FY24 (ending in June).

The market wasn’t thrilled, with the stock initially taking an 8% dip.

In the current AI arms race, investors have narrowly focused on a specific performance indicator from Microsoft: Azure and other cloud services.

So what’s going on?

Azure decelerated: Azure grew 30% in constant currency. While that’s nothing to scoff at, it came on the low end of the 30%-31% guidance. It was a slight slow down from 31% in the prior quarter. Meanwhile, Google Cloud accelerated: Alphabet just reported that its Cloud unit grew 29% in the same quarter, a 1-point acceleration. The comparison is not perfect, but momentum favored Google this time.

But hold on a minute. CFO Amy Hood shed light on a key factor during the earnings call. Part of the AI growth is supply-constrained, with hardware capacity not keeping up with demand for AI solutions. Microsoft is pouring billions into its infrastructure to catch up, and growth could reaccelerate in 2025

Server products and cloud services $26.6 billion (+21% Y/Y).

Office products and cloud services $14.3 billion (+11% Y/Y).

Windows $6.5 billion (+7% Y/Y).

Gaming $5.0 billion (+44% Y/Y), including 48 points from Activision.

LinkedIn $4.3 billion (+9% Y/Y).

Search and news advertising $3.2 billion (+5% Y/Y).

Enterprise and partner services $1.9 billion (-7% Y/Y).

Dynamics $1.7 billion (+16% Y/Y).

Devices $1.2 billion (-11% Y/Y).