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Microsoft Shares Drop as Cloud Outlook Disappoints, Meta Gains on AI Optimism

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Microsoft saw its shares tumble 6% on Thursday after its artificial intelligence (AI) investments failed to significantly boost cloud revenue. Meanwhile, Meta’s stock rose 4% as CEO Mark Zuckerberg reassured investors of strong growth potential, calling 2024 a “really big year.”

Both tech giants defended their heavy AI spending following concerns sparked by Chinese AI startup DeepSeek’s recent advancements in low-cost AI models. However, while Meta continues to show strong ad revenue growth—justifying its AI investments, according to Evercore analyst Mark Mahaney—Microsoft’s Azure cloud platform has struggled.

Microsoft missed market estimates for Azure’s quarterly revenue growth and provided a third-quarter forecast below expectations. The company had previously promised a second-half rebound, but analysts now express skepticism.

“The second-half re-acceleration story for Azure is not playing out,” said Barclays analyst Raimo Lenschow, adding that Microsoft prioritized AI workloads over core Azure functions, delaying the expected growth recovery.

For Meta, a stronger-than-expected 21% revenue increase eased investor concerns about Zuckerberg’s aggressive AI spending plans, which could reach $65 billion this year. Analysts remain bullish, with Barton Crockett of Rosenblatt stating that “Meta might have more benefits to show from AI than anyone.”

At least 15 brokerages raised their price targets on Meta, which saw a 65% stock gain in 2023, the largest among Big Tech firms. The stock’s rally was set to add over $80 billion to its market value.

Conversely, Microsoft was on track to lose about $182 billion in market capitalization. J.P. Morgan analyst Mark Murphy noted that Microsoft “did not recommit to its Azure second-half outlook the same way it did 90 days ago,” weakening confidence in the company’s cloud growth trajectory.

 

Microsoft Shares Slide After Disappointing Cloud Forecast and AI Spending Worries

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Microsoft’s shares dropped 4.5% in after-hours trading on Wednesday after the company issued a disappointing growth forecast for its cloud computing business, particularly Azure. Despite exceeding sales expectations for the fiscal second quarter, investors expressed concerns about the company’s large spending on artificial intelligence (AI) and the potential competition from cheaper AI models emerging from China.

The cloud unit, Azure, reported 31% growth in the quarter, falling short of Wall Street’s expectations of 31.8%. Microsoft’s capital expenditures were also higher than analysts anticipated, reaching $22.6 billion, compared to the forecasted $20.95 billion.

Although Microsoft’s AI investments have led to improved performance, including a 10-fold better price-to-performance ratio, analysts are looking for clearer evidence of monetization. Despite being optimistic about AI’s future potential, Microsoft CEO Satya Nadella acknowledged that the company is still in the early stages of realizing profits from these technologies.

The rise of DeepSeek, a Chinese AI startup, has intensified concerns about increased competition in the AI market, potentially leading to a price war. Microsoft has already added DeepSeek’s AI models to its Azure offerings, highlighting the growing pressure from rivals offering cheaper AI alternatives.

However, Microsoft remains a strong player in the AI space, securing new Azure contracts, including those with OpenAI, which has helped the company achieve significant commercial bookings growth of 67%. Microsoft’s total revenue for the fiscal second quarter was $69.6 billion, reflecting a 12% increase, while earnings per share were reported at $3.23, surpassing analyst expectations of $3.11.

Despite the uncertainty surrounding AI spending and competition, Microsoft continues to be viewed as a key player in the AI sector, with its stock rising 8% over the past year, although trailing behind competitors like Alphabet and Amazon in performance.

 

Microsoft to Invest $3 Billion in India to Expand AI and Cloud Infrastructure

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Microsoft is set to invest $3 billion over the next two years to enhance its Azure cloud and artificial intelligence (AI) capabilities in India, CEO Satya Nadella announced on Tuesday. This marks the company’s largest investment in India to date, underscoring the strategic importance of the country, which offers a robust tech ecosystem and cost-effective expertise. The initiative also includes efforts to upskill the Indian workforce in AI, with plans to further train 10 million people in AI by 2030.

The investment comes on top of Microsoft’s previously announced $80 billion plan to build AI-enabled data centers for fiscal 2025. This expansion in India is seen as a critical component of Microsoft’s strategy to tap into the country’s growing tech talent, with over 20,000 employees across 10 Indian cities. Nadella emphasized the significance of India’s developer community, which is already the second-largest on GitHub, with projections to surpass the U.S. by 2028.

In Bengaluru, where Nadella was speaking at a conference, he highlighted India’s contributions to Microsoft’s AI projects, specifically in relation to GitHub Copilot, the company’s generative AI tool for developers. Nadella also stressed that India’s involvement in AI initiatives is second only to the U.S., showcasing the country’s vital role in the company’s global AI ambitions.

This investment is part of Microsoft’s broader efforts to ensure its AI technologies generate profitable returns. GitHub Copilot has already shown success, with a reported annual run-rate of $2 billion in July. The company is also focused on empowering India’s talent pool, with plans to further upskill millions and foster innovation in cloud and AI sectors.

The announcement reflects the strong ties between Microsoft and India, where Nadella, who is of Indian origin, enjoys significant respect. The “Microsoft AI Tour,” which Nadella is currently part of, has drawn large crowds, including tech professionals eager to see new product developments and interact with the company’s leadership.