Stocks were a mixed bag yesterday as the Dow closed in the green up +0.5% on the day. Meanwhile the S&P 500 pulled a reverse Uno card dropping -0.5% as the Nasdaq decided to take things way too far with a -1.2% plunge after Nvidia puked on investors with a -7.24% sell-off. 

(Source: Yahoo Finance) 

On the other hand, the Russell 2000 small caps once again closed in the green with a nice +0.3% uptick going into today’s trading session. 

(Source: Giphy) 

With that said, we had quite a few earnings come out before the market opened today, with Meta and Qualcomm reporting after close. So naturally investors are on the edge of their seats, especially after Microsoft's earnings burn yesterday. 

(Source: Giphy) 

You see, upon the news of Delta’s suit on Crowdstrike and Microsoft to recover their $500+ million in damages from the outage, Microsoft investors were looking towards some kind of hope in what Microsoft earnings numbers would be. 

(Source: ABC News) 

However, the end result ended up being a "Control-Alt-Delete" moment as the stock plunged 6% after investors were left scratching their heads deciphering what the numbers actually meant. But why? 

(Source: PrimeX) 

Well at first glance, Microsoft's earnings per share (EPS) of $2.95, beat the forecasted $2.93 while their revenue hit $64.7 billion, topping the anticipated $64.4 billion. Cue the confetti? Not so fast, because when you peel back the layers, things start looking less rosy. 

Revenue from Azure and other cloud services grew by 29%, missing the 31% that analysts were dreaming about. This disappointing metric marked the first miss for Azure since 2022, sending investors into a panic spiral. 

(Source: IBD) 

On top of that, while everyone has been hyping AI up like it's the second coming of sliced bread, Microsoft’s AI performance was about as impressive as a participation trophy. Despite the overall revenue rising 21% year-over-year, the intelligent cloud division didn’t impress, with sales hitting $28.5 billion, just shy of the $28.7 billion target.

(Source: Giphy) 

Naturally, Wall Street reacted like Roman Roy after a fight with Kendall in succession as the stock dropped over 6% in after-hours trading, with AI heavy-hitters like Meta and Nvidia feeling the ripple effects too. Microsoft shares were already down about 13% from their all-time highs, and this latest earnings showing obviously didn’t help.

But, but, but, hold up there friends…

 

Amidst the chaos, there’s a silver lining. The PC market, which had been on life support, is starting to stabilize. Windows OEM revenue was up 4%, signaling a return to pre-pandemic levels. But let’s be real, right now, all eyes are on AI - the golden child, the chosen one, the Neo of the tech world. That’s where the real juicy growth is supposed to come from - especially with Microsoft (the company who unleashes Blue Screens of Death on the world) being one of the main ring leaders in the tech industry. 

(Source: Fast Company)

Of course, in an effort to add an extra jolt of confidence, Microsoft CEO Satya Nadella chimed in with a statement that was so carefully worded, it could've been penned by a politician. “Our strong performance this fiscal year speaks both to our innovation and to the trust customers continue to place in Microsoft,” he said. Translation: "We're still cool, right guys? ...Guys?"

(Source: Giphy) 

Now with all the jokes and sarcasm aside, let’s not forget that Microsoft’s AI services contributed a solid 8 percentage points to the 29% growth in Azure. That’s an upward trend from previous quarters, which means Microsoft’s AI story isn’t over—it’s still getting started (hopefully). 

(Source: Reuters)

Plus, if we zoom out, Microsoft’s fiscal year revenue was a whopping $245.1 billion, dwarfing last year’s $211.9 billion. So in short, while the AI progress isn’t exactly where investors were hoping for, it’s still encouraging to know that Microsoft is still raking in money hand over fist. 

(Source: Giphy) 

So again, looking at a 30,000 ft. view, while the numbers weren’t perfect, they weren’t a complete disaster either. The AI growth might have been a letdown this quarter, but the long-term prospects still look promising.

In the end, Microsoft is still one of the popular kids at school. They might've face-planted with some of their earning numbers, but you know they'll be back next week with a new haircut and some icy Yeezy’s. 

(Source: Giphy) 

At the time of this writing, Microsoft is down -1.00% on the day. 

(Source: Google Finance)

 

Stocks.News holds positions in Meta Platforms and Microsoft as mentioned in the article.