
Microsoft predicted on Wednesday that its cloud computing business has disappointing growth as investors fear huge spending from China, elusive AI revenue and huge spending from cheap AI models in China, elusive AI revenue and competition, Its stock fell 4.5% in after-hours trading.
The fiscal second quarter Azure results were also lower than Wall Street’s expectations. Despite exceeding quarterly sales estimates, investors are looking to get better results from the hundreds of dollars spent by Wall Street heavyweights building AI data centers and injecting their products into emerging technologies.
Chinese competitors recently claimed to produce competing AI technology at a lower cost than U.S. competitors, which has raised concerns about price wars. For more than a year, Microsoft and its large technology peers have tested Wall Street patience by reducing profits from AI that have not yet met investors.
“If it’s been a few years, it’s a few years,” said Brian Mulberry, portfolio manager at Zacks Investment Management. “But we really want to start seeing a clear roadmap to understand all the capital you invest in.” The monetization model looks like.”
During a conference call with investors, CEO Satya Nadella said the cost was reduced and the model showed a 10-fold price as Microsoft Irons excluded the algorithm.
“As AI becomes more efficient and easy to use, we will see more demand,” Nadella said.
Azure will currently grow 31% to 32% in the current third quarter, lower than Wall Street’s expectations of 33%, according to data from Visible Alpha.
Microsoft’s Azure units reported revenue growth of 31% for the quarter, with a lack of visible alpha estimated at 31.8%. Microsoft’s capital expenditure reached US$22.6 billion (about Rs 1956.83 billion), and according to data from visible Alpha, analysts’ consensus estimate is US$20.95 billion (about Rs 181.396 crore).
DeepSeek’s rapid rise in the past three weeks has sparked concerns about fierce competition that could force U.S. AI providers to cut prices.
Microsoft said earlier on Wednesday that it had added the Chinese AI model DeepSeek to Azure’s products. Microsoft said AI contributed 13 percentage points in the second quarter in fiscal second quarter, up from 12 percentage points in the previous quarter.
Nadella said in response to analyst questions that Microsoft is spending building data centers to develop AI models and deliver them to customers. He added that Microsoft is working to make these services more cost-effective.
“We worked very hard on all software optimizations – not only the optimizations done by DeepSeek, but also with Openai to reduce the price of GPT models to reduce all the work on GPT models,” Nadella said.
“In fact, we’ve done a lot of work in reasoning optimization, which is the key to driving it.”
Overall, investors still seem to see Microsoft as the main bet for AI. Its stock has risen about 8% over the past year, trailing 29% in the alphabet, and Amazon has gained 50%. According to LSEG, it trades at about 32 times the expected return, slightly higher than its five-year average of 30 times.
Microsoft also announced 67% growth commercial bookings, a measure of new contracts signed with large customers.
Brett Iversen, Microsoft’s vice president of investor relations, said the figure was driven primarily by a large new Azure contract with Openai.
Despite Openai’s announcement of a new data center agreement with Oracle last week, Microsoft still retains the right to host models for commercial purposes.
In the company’s smart cloud division, including Azure platform, revenue grew to $2.54 billion (approximately Rs 1,777,836 crore), missing $25.76 billion expectation (approximately Rs 1,79,751 crore)
Total revenue rose 12% to $69.6 billion (about Rs 602.635 crore) in the second quarter ended December, while analysts’ average estimate was $68.78 billion (about Rs 595.562 crore) Rs), according to the data compiled by LSEG, is approximately Rs 5,95,562 crore.
Washington-based Microsoft reported a profit of $3.23 per share (approximately Rs 280), surpassing expectations of $3.11 per share (approximately Rs 270).
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