Economic Indicators Point to Controlled Inflation as Consumer Spending Rises
The latest GDP data reveals a promising trend, with inflation remaining in check as consumer spending continues to rise. This positive news comes as Microsoft’s latest earnings report sheds light on the company’s growth prospects.
Microsoft’s AI Ambitions Constrained by Capacity Issues
Despite beating analyst estimates for total revenue and earnings in its fiscal second quarter, Microsoft’s stock took a hit following the release of its earnings report. The company’s Azure cloud computing infrastructure growth and outlook fell short of expectations, with a 31% year-over-year growth rate in fiscal Q2, at the low end of its guidance range.
Capacity Constraints Limit AI Revenue Growth
Microsoft’s AI services saw a remarkable 157% year-over-year growth, but the company’s capacity constraints in its data centers limited its revenue growth. According to Chief Financial Officer Amy Hood, “Demand continued to be higher than our available capacity.” However, the company expects to catch up with demand by the end of FY2025, thanks to significant capital investments.
Wall Street Reacts to Microsoft’s Earnings Report
At least three Wall Street firms lowered their price targets on Microsoft stock following the earnings report. Mizuho Securities analyst Gregg Moskowitz reiterated his outperform rating on Microsoft stock but trimmed his price target to 500 from 510, citing the company’s revenue guidance miss for the current quarter.
Microsoft’s Focus on AI Technology Stack
Chief Executive Satya Nadella emphasized the company’s focus on providing a full technology stack for AI, including cloud infrastructure, data, and platform and tools layers. Microsoft has more than doubled its overall data center capacity in the last three years, with a significant increase in capital expenditures in the December quarter.
Microsoft Stock Takes a Hit
Microsoft stock sank more than 5% to 416.30 in midday trades, despite the company’s strong earnings report. The stock is part of the IBD Long-Term Leaders Portfolio.
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