Microsoft delivered an overall strong quarter after Tuesday’s market close, but a miss on Azure revenue growth put shares under pressure in extended-hours trading.

• Revenue increased about 15% year over year to $64.73 billion in its fiscal 2024 fourth quarter, beating the Street consensus estimate of $64.39 billion, according to data from LSEG.

• Earnings per share increased nearly 10% from last year to $2.95, ahead of EPS estimates of $2.93, LSEG data showed.

• Guidance: for its full-year fiscal 2025, Microsoft expects double-digit revenue growth and operating income growth, with revenue to be in the range of $63.8 billion and $64.8 billion. This is below expectations. 

We were so close to having an encore of the picture-perfect results we got in Microsoft’s fiscal third quarter. In addition to fiscal Q4 sales and earnings outpacing expectations, gross, operating, and net profit margins were all better than expected at the companywide level. Operating profitability was stronger than expected in all three main operating segments. Cash flow generation was also much more than expected despite slightly higher-than-expected operating expenses and capital expenditures to support the company’s cloud and artificial intelligence offerings. The one major miss was at Azure, which is the one unit investors are hyper-focused on. That sent the stock lower by more than 2.5% following the release.

If anything, with shares ahead of the print down nearly 10% from their all-time highs set earlier this month, very close to its 200 day Moving Average, we view this as a strong buying opportunity, as shares are likely to consolidate here and move higher into year's end.

Azure was light, but by no means it’s a sign that the AI trade is over. On the post-earnings call, CEO Satya Nadella said, “The number of people who use [Copilot for Microsoft 365] daily at work nearly doubled quarter-over-quarter as they use it to complete tasks faster, hold more effective meetings, and automate business workflows and processes.” Copilot customers increased more than 60% quarter-over-quarter. Nadella added, “Feedback has been positive with majority of enterprise customers coming back to purchase more seats. All up, the number of customers with more than 10,000 seats more than doubled quarter-over-quarter.”

While some may fret over the current level of spending in hopes of future financial gains, we think it’s important for investors to zoom out. CFO Amy Hood said on the call, “Cloud and AI-related spend represents nearly all of our total capital expenditures. Within that, roughly half is for infrastructure needs where we continue to build and lease data centers that will support monetization over the next 15 years and beyond. The remaining cloud and AI-related spend is primarily for servers, both CPU and GPUs to serve customers based On Demand signals.” Those are positive demand signals for those serving up data center chips, such as Nvidia, Broadcom and AMD.

Forward guidance for the current quarter, fiscal 2025 Q1, was short, but the stock managed to pare some of its losses after management provided a positive outlook regarding the cadence of Azure growth. The team expects to see an acceleration in the second half of fiscal 2025. Investors had been expecting to see a bit of a slowdown over that stretch.