Microsoft’s Q2 Earnings Beat: A Win Overshadowed by AI Anxiety

In the ever-volatile world of tech stocks, Microsoft delivered what should have been a slam-dunk earnings report for its fiscal Q2 2024. The company posted an earnings per share (EPS) of $5.16, smashing Wall Street’s expectations of $3.92, while revenue hit $81.27 billion against forecasts of $80.3 billion. Cloud services were a standout, with total cloud revenue crossing the $50 billion mark for the first time at $51.5 billion, up significantly from $40.9 billion a year earlier.

Breaking it down by segments, Intelligent Cloud brought in $32.9 billion (beating estimates of $32.2 billion), Productivity and Business Processes raked in $34.1 billion (above $33.6 billion expected), and More Personal Computing held steady at $14.3 billion. These figures paint a picture of robust growth, especially in cloud and AI-driven areas. The remaining performance obligations (RPO) stood at a whopping $625 billion, with 45% tied to OpenAI commitments, signaling strong future demand for AI technologies.

Yet, despite these positives, Microsoft’s stock took a nosedive, plummeting over 11% to close at $425.35, shedding 56.28 points in a single day. Why the pessimism? Investors are jittery about the company’s escalating capital expenditures, which ballooned to $37.5 billion from $22.6 billion in the prior comparable quarter. Much of this spend is funneled into AI infrastructure, where demand is outpacing supply, potentially limiting short-term revenue upside.

CEO Satya Nadella remains optimistic, noting, “We are only at the beginning phases of AI diffusion, and already Microsoft has built an AI business that is larger than some of our biggest franchises.” This highlights Microsoft’s aggressive push into AI, but the market seems more focused on the costs than the potential payoffs. As cloud growth shows signs of deceleration, questions linger: Is Microsoft overinvesting in AI at the expense of margins?

For investors, this could be a buying opportunity if AI pays off long-term, but it’s a reminder that even giants like Microsoft aren’t immune to market scrutiny. Keep an eye on upcoming quarters for signs of AI monetization accelerating.