Microsoft stock is falling after an AI sales disappointment

Microsoft’s AI expenses caused it to spend more money than analysts expected in its fiscal fourth quarter. At the same time, its AI sales disappointed.

Microsoft reported quarterly capital expenditures of $13.9 billion — 55% higher than the year before and $200 million higher than the $13.7 billion projected by analysts polled by FactSet. Sales in its Intelligent Cloud unit hit $28.7 billion, just below analysts’ expectations.

Overall revenue across Microsoft’s divisions surpassed Wall Street estimates, hitting $64.7 billion.

“Our strong performance this fiscal year speaks both to our innovation and to the trust customers continue to place in Microsoft,” said CEO Satya Nadella in a statement Tuesday. “As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era.”

Wall Street is becoming more cautious about the massive costs of AI infrastructure. Investors reacted poorly to Google and Tesla’s hefty AI expenses last week. The Nasdaq had its worst day of 2024 after the two members of the “Magnificent Seven” reported second-quarter earnings. Now they’re reacting to Microsoft’s AI sales miss. The tech giant’s shares dropped more than 6% after the bell on Tuesday.

Still, Microsoft is a step ahead of other companies in terms of its monetization of AI, analysts have noted. Its latest AI innovation has been its AI PC, released in May at its annual developer conference, Microsoft Build.

Despite the drop Tuesday, Microsoft shares have risen 200% from five years ago and nearly 25% in the past year. Bullish Jefferies analysts see the stock rising to $550 over the next 12 months, while Bank of America’s price target for Microsoft shares is $510 and Deutsche Bank’s is $475.