Microsoft experienced its largest single-day share price drop since 2020, falling 10 per cent despite reporting impressive December quarter results. The technology giant, which develops, licenses, and supports a range of software products and services, saw revenue surge 17 per cent to $US81.3 billion and operating income jump 21 per cent to $US38.3 million, exceeding analyst expectations. However, investors reacted negatively to a slight slowdown in the growth of Microsoft’s Azure cloud computing business, a key indicator of the company’s ability to capitalise on artificial intelligence (AI).
While Azure sales still increased by a substantial 39 per cent, this was marginally lower than the previous quarter’s 40 per cent growth. This seemingly minor difference triggered a significant sell-off, with investors expressing concern about the pace of AI monetisation and perceived high capital expenditure. Tech analyst Dan Ives noted that the market had anticipated faster cloud and AI revenue growth, contributing to the stock’s downturn. The focus on Azure’s performance highlights the market’s expectation that Microsoft should be demonstrating clear financial returns from its AI investments.
Despite the share price plunge, some analysts, like Ives, maintain that Microsoft’s long-term prospects in the AI sector remain strong. However, the market’s reaction serves as a reminder that investor sentiment towards AI companies is highly sensitive. With valuations stretched and positioning potentially overextended, even slight disappointments can trigger significant reversals. The episode underscores the pressure on tech companies to deliver tangible results from their AI spending and manage market expectations effectively.
The episode also raises questions about overall investor confidence in the AI sector, particularly after bubble hunter Jeremy Grantham warned the AI boom may be reaching its limits. Microsoft’s stock is now down 2 per cent over the last 12 months, and up just 7 per cent over the past two years, which hardly signals an AI boom. The market is demanding to ‘see the money’, and it is the speed and size of the move that serves as a reminder that investor positioning and valuations are very stretched, and sentiment can and will shift sharply.
