MS, 6% Drop in After-Hours Trading Despite 'Surprise Earnings' Due to AI Revenue Disappointment

Fiscal Year Q4 Sales and Net Profit 'Exceed Expectations'
Sell-off Emerges Amid Disappointing AI-Related Cloud Sales

Microsoft (MS) is experiencing a sharp decline in its stock price during after-hours trading due to weak performance in its artificial intelligence (AI) cloud segment, despite reporting earnings that exceeded market expectations. The valuation, which had already been elevated due to high expectations for AI, and the market's high standards for AI-related earnings have not been met, raising concerns about an 'AI bubble.'

On the 30th (local time), MS announced its fiscal fourth-quarter results (April to June this year), reporting revenue of $64.73 billion, a 15% increase compared to the same period last year, and net income of $22 billion, with earnings per share (EPS) rising 9.8% during the same period. EPS was recorded at $2.95.

This performance surpassed market forecasts. Earlier, market research firm LSEG had estimated MS's Q2 revenue at $64.39 billion and EPS at $2.93.

MS generated $28.52 billion in revenue from its Intelligent Cloud segment, which includes AI-related sales. This represents a 19% increase year-over-year but fell short of the market consensus of $28.68 billion compiled by StreetAccount. Within this, revenue from Azure and other cloud services grew by 29%, yet this also missed experts' expectations of a 31% increase.

Wall Street is closely watching MS and other big tech companies to verify profitability in the AI sector, given their massive investments in AI. The technology sector's rise in the first half of the year was largely driven by the AI boom, so disappointment over weak AI segment earnings is leading investors to sell off shares, causing stock prices to fall.

Meanwhile, as of 4:33 PM Eastern Time, MS's stock price is down sharply by 5.89% in after-hours trading.