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AI leadership and cloud power aren’t enough to stop the sell-off. Microsoft’s stock dropped sharply to an 8-month low even after posting solid fiscal second-quarter results, as investors reacted to slowing consumer growth and ongoing AI-related capital expenditures. The tech giant remains a leader in AI after its early investment in OpenAI, now owning a 27% stake valued around $135 billion, while Azure continues to drive impressive cloud revenue growth.
Strong Earnings Overshadowed by Flat Guidance and Higher Costs
Revenue rose 17% to $81.3 billion, operating income climbed 21% to $38.3 billion, and adjusted earnings per share jumped 24% to $4.14, with operating margins holding at 47%. Azure revenue surged 39%, contributing $32.9 billion to the intelligent cloud segment. Yet, cautious guidance for the next quarter, coupled with higher costs, sparked investor concern and led to a double-digit stock drop, erasing over $400 billion in market value.
Backlog Growth and Cloud Expansion Signal Future Strength
Despite market jitters, Microsoft’s remaining performance obligations reached $625 billion, indicating strong demand ahead. The company continues to invest in AI infrastructure and cloud capacity, maintaining competitive advantages that position it for mid-to-high-teens revenue growth in the coming quarters.
Valuation and Opportunity: Is the Sell-Off Overdone?
The stock now trades at a P/E of 25, below the S&P 500 average, making it cheaper than many peers despite its growth potential. Azure is expected to grow 37%-38% this quarter, and Microsoft’s AI leadership, enterprise reach, and cloud dominance suggest the current sell-off may present a compelling buying opportunity.
