Microsoft Corp. reported tepid fourth-quarter sales growth, held back by decelerating demand for cloud-computing services while the software maker waits for a revenue boost from new artificial intelligence-powered products.
Profit in the period ended June 30 was $2.69 a share and sales rose 8% to $56.2 billion, the software maker said in a statement Tuesday. While overall results topped analysts’ projections, Azure cloud services revenue growth slowed to 27%, excluding currency fluctuations, from 31% in the previous quarter.
Chief Executive Officer Satya Nadella has unveiled an array of new AI programs — based on models from partner OpenAI — for most of Microsoft’s major product lines, and demand is surging for internet-based services that let customers use the OpenAI technologies. Still, the company’s Office productivity suite including AI isn’t yet broadly available, and overall spending on Azure services and Office applications is easing after several years of rising corporate investments. At the same time, personal computer shipments dropped for the sixth quarter in a row, eroding sales of Windows software and Surface devices.
“Clients who had been gung ho on cloud came back and said, ‘We’d better optimize what we bought,’” said Mark Moerdler, an analyst at Sanford C. Bernstein & Co. “You won’t see huge tailwinds from AI — it will be incremental.”
The shares fell about 1.5% following the report, after climbing to $350.98 at the close in New York. The stock rose 18% in the three months ending in June, outpacing the 8.3% increase in the S&P 500 Index in that period. Last week, shares of Microsoft reached a record high, fueled by optimism for new AI strategies and products.
For the fiscal fourth quarter, analysts on average had estimated $2.56 a share in earnings and $55.5 billion in sales, according to a Bloomberg survey.
Annual sales growth moderated to 7% in 2023 after five straight years of increases above 10%. Microsoft fired 10,000 workers in the March quarter, including in key businesses like Azure and security software. The Redmond, Washington-based company made a smaller number of additional layoffs in July, in areas like sales and support.
The company is increasing spending to expand data centers and purchase chips needed to run complex AI systems. To make up for the hefty investments, Microsoft is rolling out ways to generate money from those products; earlier this month, the company set a price tag of $30 a month per user for its Office AI tools, called Microsoft 365 Copilot — on top of what most business customers already pay for the business productivity package, which includes Word, Excel, email and conferencing software.
Microsoft has invested $13 billion in startup OpenAI, a partnership that vaulted the 48-year-old software maker to the forefront of a race to build new applications that let customers create new content from their existing data as well as information scraped from the web. Microsoft is overhauling most of its products — including Office, Windows, Azure and Bing search — around OpenAI’s latest language model, GPT-4 and adding chatbot technology similar to the startup’s viral hit ChatGPT.