- Microsoft reported second-quarter earnings late Wednesday.
- The company’s AI and cloud computing sales results were lower than analysts expected.
- Microsoft’s stock was one of several hit after DeepSeek’s AI model announcement on Monday.
Microsoft’s earnings on Wednesday showed strong growth in its AI business — just not enough to reassure investors.
Sales tied to Azure and other cloud computing services grew 31% in fiscal Q2, slightly slower than the 31.8% analysts surveyed by Bloomberg estimated.
“Already, our AI business has surpassed an annual revenue run rate of $13 billion, up 175% year-over-year,” Microsoft CEO Satya Nadella said on the earnings call.
Microsoft is “innovating across our tech stack and helping customers unlock the full ROI of AI to capture the massive opportunity ahead,” he said.
Going into the third quarter, Microsoft is in “a pretty constrained capacity place” when it comes to providing enough data centers to meet demand for AI, CFO Amy Hood said on an earnings call.
Shares of Microsoft slipped in after-hours trading on Wednesday. Executives will discuss the results during a webcast at 5:30 p.m. ET.
Tech executives, including Nadella, were expected to face scrutiny this earnings cycle about spending billions of dollars to build AI capabilities — and the returns from it. That pressure has been stepped up after Chinese company DeepSeek debuted a model that appears comparable to US rivals but seemingly costs less to train.
Hood told employees in an internal memo to focus amid recent AI-related news, Business Insider reported.
Those concerns, and Microsoft’s response to them, are a bigger story than the earnings numbers themselves, EMARKETER Senior Director of Content Jeremy Goldman said Wednesday. EMARKETER is a subsidiary of Axel Springer, which also owns Business Insider.
“Microsoft had a fine quarter, but ‘fine’ isn’t what investors want from an AI juggernaut spending like it’s building the Death Star,” Goldman said. “The cloud is still a growth engine, but AI competition — especially from unexpected players like DeepSeek — is real.”
Microsoft was one of several companies whose stocks fell on Monday after DeepSeek revealed its model. It has a multibillion-dollar investment in OpenAI. The selloff took a collective $1 trillion off US companies’ market caps.
Read the full article here
