Microsoft Shares Sink After Cloud Unit Misses Projections

Microsoft’s shares sank more than 5 percent in after-hours trading on Wednesday after the company slightly missed analysts’ expectations for its closely watched cloud computing business, which is at the heart of its artificial intelligence (AI) strategy.

Sales from the company’s cloud business, including the Azure cloud platform, grew 19 percent for the October to December quarter over the same period a year earlier to $25.5 billion (£20.5bn).

The figure was slightly below the $25.83bn projected by FactSet analysts.

The firm also said it would continue to face capacity constraints in servicing AI demand in the coming quarter.

Cloud constraints

Chief financial officer Amy Hood said the “ongoing impact” of capacity issues was expected to continue through the first half of 2025 as Microsoft works to “address execution challenges”.

Microsoft expects Azure contract growth to be roughly flat year-on-year, Hood said.

AI has been at the heart of a massive growth in the share prices of major tech companies over the past two years, as firms have spent billions to build out infrastructure for generative AI services.

Microsoft has said it plans to spend $80bn this year on capital expenditures including AI data centres and AI accelerator chips.

“We have more than doubled our overall data centre capacity in the last three years and we have added more capacity last year than any other year in our history,” said Microsoft chief Satya Nadella.

The company’s shares sank on Monday as investors questioned how DeepSeek, a one-year-old Chinese start-up, had managed to create a popular AI chatbot app that outperformed similar models from Microsoft-backed OpenAI, Anthropic and others, with a fraction of those companies’ resources and expenditures.

AI commoditisation

Following their Wednesday losses, Microsoft’s share price was still above its price after Monday’s $1tn Wall Street AI reckoning.

Microsoft said it had added DeepSeek’s latest model to those available on Azure.

Nadella said DeepSeek showed that AI was moving toward commoditisation, which was a good thing because it meant “people can consume more and there’ll be more apps written”.