Microsoft Corporation (MSFT) market capitalization fell by $200 billion on January 30 after the company reported weak growth in its cloud computing division in the Fiscal second quarter.
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In particular, Microsoft’s cloud division, which includes its Azure cloud computing platform, is its biggest revenue driver. Despite the company’s efforts to invest in the cloud, revenue from Azure and other cloud services increased only 31% in FYQ2, down from 33% growth in the previous quarter. It also fell below the analysts’ expectations of cloud growth of 31.9%.
Microsoft Faces Challenges Despite Strong Financial Results
Though Microsoft managed to beat Wall Street forecasts on both the top and bottom lines, it continues to face challenges. CFO Amy Hood pointed out that capacity constraints may persist into 2025, hindering cloud growth despite ongoing infrastructure expansion.
To address surging demand for AI services, Microsoft spent $22.6 billion in capital expenditures last quarter, doubling from the previous year. The company plans to invest $80 billion in AI infrastructure for the current fiscal year to enhance data centers for AI model training and application deployment.
The significant spending occurs as concerns rise on Wall Street over China’s DeepSeek. The company claims to perform AI tasks as effectively as major U.S. players like Microsoft-backed OpenAI, but at a much lower cost.
Is Microsoft a Buy, Sell, or Hold?
MSFT stock has a consensus Strong Buy rating among 32 Wall Street analysts. That rating is based on 29 Buy and three Hold recommendations issued in the last three months. The average price target on MSFT stock of $508.44 implies 22.52% upside from current levels.
