Microsoft stock plunges 12% after earnings as Azure growth slows and AI costs rise

Microsoft shares plunged 12% on Thursday after its quarterly results as investors reacted to heavy AI spending and signs of slowing growth in its Azure cloud business. The company beat both top- and bottom-line forecasts and reported cloud revenue reached $50 billion for the first time, but the stock still fell 12%, its biggest decline since March 2020.

Azure revenue grew 39% year over year, above the forecast of 38.4% but down from 40% in the prior quarter — a shortfall analysts say is the primary factor driving the sell-off. "Microsoft allocated scarce GPU capacity away from Azure to 1P products, but the fact that BOTH Azure and the M365 segments fell a bit short is the key negative we're hearing that is driving the modest after-market fade," UBS analyst Karl Keirstead said.

Wall Street was closely watching AI spending. Meta’s shares rose after results — despite a jump in its spending outlook — because its strong advertising business offset that outlook, underscoring investor demand for strength outside of capex. Tech observers also warned Microsoft’s heavy AI outlays are a concern: University of Michigan professor Erik Gordon called the spending a signal of a potential AI bubble and said Microsoft may need to spend even more to reach its goals.

Analysts flagged other risks tied to Microsoft’s AI bets.

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