Shares of Microsoft and Meta underwent a decline of over 3% in after-hours trading following their earnings reports for the September quarter. While both companies exceeded market expectations, their cautious guidance disappointed investors. Microsoft’s stock has risen 16% year-to-date, while Meta's shares have surged 68% as of the close on Wednesday.

Both companies have been heavily investing in artificial intelligence (AI) infrastructure, raising concerns about whether their growth can justify the significant expenses. Despite their shared focus on AI, they face unique challenges—Microsoft grappling with capacity constraints and Meta dealing with overspending. Investors reacted negatively to their conservative outlooks on the ongoing hurdles.

The market's response could also be influenced by Alphabet's recent strong earnings report, which set high expectations among investors.

Microsoft’s Azure Growth Slows
In its first-quarter earnings for fiscal year 2025, Microsoft reported that the growth of its Azure cloud services slowed to 34% year-on-year, down from 35% in the previous quarter. The company had adjusted its June quarter report, reallocating some revenue from mobility and security services to its Office software segment, which led to an upward revision of Azure's growth rate from 29% to 34%.

Despite steady growth in this competitive segment, which includes rivals such as Amazon’s AWS and Alphabet’s Google Cloud, Microsoft provided disappointing guidance for the current quarter, predicting growth of 32% to 33% at constant currency. This forecast indicates a potential slowdown. CFO Amy Hood mentioned that supply shortages in some data center capacities related to AI initiatives may constrain revenue growth in Azure during the December quarter.

Analysts are wary of Microsoft's increasing investment in AI infrastructure for its supercomputing applications. The company's quarterly capital expenditures rose significantly by 79% year-on-year to reach a record high of $20 billion (€18.4 billion). However, Josh Gilbert, a market analyst at Oanda Australia, remains optimistic about Microsoft’s future, stating, “With enterprise spending on cloud services rising, Microsoft seems to be just beginning its AI expansion, and the good times look set to continue.”

In terms of financial performance, Microsoft surpassed analysts' expectations, with revenue increasing 16% year-on-year to $65.59 billion (€60.45 billion) and earnings per share hitting $3.30 (€3.04). This exceeded estimates of $64.51 billion (€59.45 billion) in revenue and $3.10 (€2.9) in earnings per share. CEO Satya Nadella remarked, “AI-driven transformation is changing work, work artifacts, and workflow across every role, function, and business process. 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.”

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