What Happened?
Shares of technology giant Microsoft (NASDAQ: MSFT) fell 11.8% in the afternoon session after the company reported mixed fourth quarter earnings: Business Services and Intelligent Cloud revenue beat, but Personal Computing missed. EPS, even after removing the impacts of OpenAI, also beat expectations.
However, the magnitude of the beat in Intelligent Cloud and Azure's growth rate could be called into question by some investors hoping for stronger results, aided by AI products and services.
Looking ahead, management expects demand for Microsoft 365 Copilot, GitHub Copilot, and AI-driven business applications to continue driving growth, but cautioned that capital allocation and supply constraints could affect the pace of expansion. Zooming out, we think this was still a good print with some key areas of upside, but the market was expecting more.
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What Is The Market Telling Us
Microsoft’s shares are not very volatile and have only had 3 moves greater than 5% over the last year. Moves this big are rare for Microsoft and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 6 days ago when the stock gained 4% on the news that a UBS analyst reiterated a Buy rating with a $600 price target.
The analyst argued that "continued ramp of the big Fairwater AI data centers in both Atlanta (which went live in October) and Wisconsin (going live in 1Q26)" are "key near-term catalysts for Microsoft Azure growth." Adding to the positive sentiment, the company announced a multiyear partnership with the Mercedes-AMG PETRONAS F1 Team to use the company's cloud and enterprise AI technologies.
The collaboration was set to place Microsoft Azure and AI at the center of the racing team's operations, from the factory to the track, for simulation, performance analysis, and race strategy. This news arrived at a time when investors were looking for signs that Microsoft's investments in AI and cloud expansion were translating into tangible results. The partnership provided a high-profile example of its technology in action.
Microsoft is down 10.1% since the beginning of the year, and at $425.04 per share, it is trading 21.6% below its 52-week high of $542.07 from October 2025. Investors who bought $1,000 worth of Microsoft’s shares 5 years ago would now be looking at an investment worth $1,832.
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