Microsoft late Wednesday topped Wall Street's targets for the software giant's fiscal first quarter on strong cloud computing business. However, Microsoft stock fell in extended trading after the company guided below views for sales in the current quarter.
The Redmond, Wash.-based company earned $3.30 a share on sales of $65.6 billion in the quarter ended Sept. 30. Analysts polled by FactSet had expected fiscal Q1 earnings of $3.10 a share on sales of $64.6 billion. On a year-over-year basis, Microsoft earnings increased 10% while sales rose 16%.
Microsoft Cloud revenue increased 22% to $38.9 billion in fiscal Q1. Sales in the company's Azure cloud computing business rose 34% year over year in constant currency, meeting the high end of buyside expectations. The official consensus growth estimate was 30.7%, according to FactSet.
"AI-driven transformation is changing work, work artifacts, and workflow across every role, function and business process," Chief Executive Satya Nadella said in a news release. "We are expanding our opportunity and winning new customers as we help them apply our AI platforms and tools to drive new growth and operating leverage."
For the current fiscal second quarter, Microsoft forecast sales of $68.6 billion, based on the midpoint of its outlook. Wall Street was modeling revenue of $69.9 billion for fiscal Q2.
Microsoft Stock Drops On Outlook
Further, the software leader predicted slowing sales growth in its Azure business in Q2. It expects Azure revenue growth of 31% to 32% in constant currency in the December quarter.
Also, the company expects a sequential increase in capital expenditures in the current quarter as it builds out its AI data center infrastructure. Microsoft spent $20 billion on capex in the September quarter, in line with estimates.
In after-hours trading on the stock market today, Microsoft stock initially rose on the company's better-than-expected results. But after the company gave its fiscal Q2 outlook on a conference call with analysts, shares fell. In recent trades, Microsoft stock was down 3.6% to 416.85.
Microsoft stock has been consolidating for the past 17 weeks at a buy point of 468.35, according to IBD MarketSurge charts.
A 'Gut Check Quarter' For Microsoft
Ahead of the earnings report, Wedbush Securities analyst Daniel Ives said investors are looking for signs of adoption of Microsoft's Copilot AI services.
"Investor sentiment around the Microsoft story over the last few months has shifted more neutral/cautious with shares underperforming the Nasdaq 100, with concerns around the pace of Copilot adoption and increasing competition in the AI ecosystem from other Big Tech players," he said in a client note Tuesday.
He added, "This is a 'gut check quarter' for Microsoft with many on the Street starting to grow skeptical of the pace of this AI/cloud growth story in Redmond."
Ives rates Microsoft stock as outperform with a price target of 550.
Microsoft stock is in the IBD Long-Term Leaders Portfolio.
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