In the second quarter of Microsoft, revenue, EPS earnings, and operating profit all increased by at least 10% year-on-year, which is slower than the first quarter but higher than market expectations. Intelligent cloud computing service revenue growth slowed to less than 20%, lower than expected, with Azure and other cloud computing services revenue slowing down after two consecutive quarters of rapid growth, and the growth rate was below 30% for the first time in nearly three quarters.
Although overall sales revenue and profits have maintained double-digit growth, ...$Microsoft (MSFT.US)$The slowdown in growth of Azure's cloud business income in Q2 exceeded Wall Street's expectations, disappointing investors who were eager to see Microsoft's massive investment in AI pay off.
Microsoft announced its fiscal fourth-quarter 2024 financial results as of June 30, 2024, on Tuesday, July 30th after the US market close.
1) Main financial data
Revenue: Revenue for the second quarter was $64.73 billion, up 15% year-on-year, with analysts expecting $64.52 billion, up 17% year-on-year in the first quarter.
EPS: Diluted earnings per share (EPS) for the second quarter were $2.95, up 10% year-on-year, with analysts expecting $2.93 and up 20% year-over-year in the first quarter.
Operating profit: Operating profit for the second quarter was $27.93 billion, up 15% year-on-year, with analysts expecting $27.63 billion.
Net income: Second-quarter net income was $22 billion, up 10%, with first-quarter growth of 20%.
Capital expenditure: Capital expenditure in the second quarter was $13.87 billion, with analysts expecting $13.27 billion.
2) Revenue by Business Segment
Intelligent cloud business, including Azure public cloud, Windows servers, voice recognition software Nuance and GitHub, recorded revenue of $28.52 billion in the second quarter, up 19% year-on-year, with analysts expecting $28.72 billion and up 21% year-over-year in the first quarter.
Productivity and business processes, including Microsoft 365 Copilot AI tools and Office software, recorded second-quarter revenue of $20.32 billion, up 11% year-on-year, with analysts expecting $20.21 billion and up 12% year-over-year in the first quarter.
More personal computing, including Windows operating systems, Surface hardware, Xbox game consoles, and video game company Activision Blizzard, recorded second-quarter revenue of $15.9 billion, up 14% year-on-year, with analysts expecting $15.54 billion and up 17% year-over-year in the first quarter.
After the financial report was released, Microsoft's stock price fell about 0.9% on Tuesday and then plummeted after hours, with a drop of up to 8%, and now the drop has narrowed to 3.54%.
The growth rate of intelligent cloud revenue slowed to less than 20%, lower than expected, and Azure revenue was below 30% for the first time in nearly three quarters.
The financial report showed that Microsoft's total revenue and profit growth in the second quarter slowed down compared to the first quarter, but they still exceeded Wall Street's expectations. However, the income from cloud business not only failed to continue to accelerate growth from the previous quarter, but also slowed down more than Wall Street's expectations. Revenue growth for intelligent cloud business was less than 20% for the first time in the past three quarters.
Among the intelligent cloud business, the revenue of Azure and other cloud services in the second quarter increased by 29% year-on-year, slower than the 31% growth rate in the first quarter, and the growth rate was lower than 30% for the first time since the third quarter of last year. Excluding the impact of exchange rate fluctuations, Azure and other cloud service revenue increased by 30%, slightly lower than the expected growth of 30.3% by analysts.
After two consecutive quarters of year-on-year accelerated growth, the revenue growth of Azure and other cloud services slowed down, causing concern among investors that the driving force for cloud revenue growth from AI is weakening.
Microsoft said that AI services contributed 8 percentage points of growth for Azure and other cloud services in the second quarter. This contribution increased slightly compared to 7 percentage points in the first quarter and 6 percentage points in the fourth quarter of last year.
Microsoft's stock price fell sharply after-hours despite most financial metrics exceeding expectations, once again highlighting investors' concerns about the return on investment in AI by tech giants. The 'money-oriented' Wall Street believes that AI technology is far from reaching the expected practical level, and investing too much not only fails to recoup costs but also risks creating bubbles.
Last week, Microsoft's archrival Alphabet, the parent company of Google, announced financial results for the second quarter that were higher than expected. However, Wall Street remains unconvinced and is refocusing its attention on capital expenditure, fearing that Google's high investment in technology infrastructure will affect profitability. It is well known that the main driving factor for the continuous and substantial increase in capital expenditure by tech giants such as Google is AI.
As mentioned earlier, last week, Meta's CEO Zuckerberg and Alphabet's CEO Pichai both hinted in their speeches that their companies and other tech companies may be overinvesting in AI infrastructure, "may be investing too much in AI." But they both acknowledge that if they don't do so, the commercial risks are too high. Pichai stressed that the risk of underinvestment in AI is much greater for Alphabet than the risk of overinvestment.
Editor/Somer