Microsoft stock tanks after disappointing AI business growth

Microsoft reported better-than-expected earnings and revenue for the latest quarter. But the company’s shares dropped nearly 7% on Tuesday after its AI cloud business revenue fell short of analysts’ predictions.

The tech giant’s overall revenue in the quarter ending June 30 was $64.7 billion, a 15% increase from last year. Net income was at $22.04 billion, up from $20.08 billion in the year-ago quarter, indicating the company’s strong growth.

However, the company’s Intelligence Cloud, which comprises Azure public cloud, Windows Server, Nuance, and GitHub, generated $28.5 billion rather than the expected $28.7 billion. And shareholders are focused on this.

Investors wonder if AI investments are paying off. CEO Satya Nadella’s artificial intelligence strategy involves pouring billions into AI businesses like ChatGPT’s OpenAI, data centers and chips.

Not just Microsoft, Google parent Alphabet’s shares fell 5% last Wednesday after it reported ad revenue growth slowed 11.1% in the second quarter, from 13% in the first quarter—at a time when the company is heavily investing in AI.

Investors await Meta, Amazon and Apple earnings to see the impact of AI.