Microsoft shares dropped in extended trading on Wednesday even after the tech giant reported strong second-quarter earnings. US stock futures edged lower on Wednesday evening as investors absorbed a mix of results from major tech companies and the Federal Reserve’s latest policy move, while staying cautious ahead of more corporate earnings later this week.
Microsoft Corporation shares fell 7% in after-hours trading. The software giant reported slower growth in its cloud business during the fiscal second quarter and soft guidance for operating margins in the current quarter, in contrast to Meta and Tesla, which saw a rise in share price.
By 8:10 pm ET, S&P 500 Futures fell 0.2% to 6,994 points, Nasdaq 100 Futures held steady at 26,159.75 points, and Dow Jones Futures dropped 0.3% to 49,019 points.
Why are Microsoft’s shares falling?
Microsoft posted earnings per share of $5.16 on revenue of $81.27 billion, surpassing analyst estimates of $3.92 in EPS and $80.3 billion in revenue. Its Azure cloud revenue reached $51.5 billion, up from $40.9 billion a year earlier and slightly above forecasts. Analysts said the results were fueled by Microsoft’s new deal with OpenAI, which was signed in October. Microsoft owns roughly 27% of OpenAI’s for-profit entity, and the company reported that OpenAI contributed $7.6 billion to its earnings.
Despite these gains, Microsoft’s stock fell. According to the Wall Street Journal, Investors were concerned about higher spending on data centres and weaker-than-expected sales in the gaming division, with Xbox revenue down 9%.
Michael Gapen, chief US economist at Morgan Stanley, said Powell kept the door open for further rate cuts this year, “when they get enough evidence inflation is decelerating.” Powell suggested in his remarks that the impact of tariffs, which have pushed up the cost of many goods such as furniture, appliances and toys, will peak in the middle of this year and inflation will fall after that.
Microsoft is building large, interconnected AI data centres, calling them an AI “super factory.” On Monday, the company unveiled a new chip, Maia 200, designed to be faster and cheaper than competitor chips for certain tasks.
CEO Satya Nadella has warned that AI adoption is still in the early stages. Speaking at the World Economic Forum in Davos, he said AI must expand beyond tech companies to avoid a financial bubble. He also described the current period as “the opening miles of a marathon”, with much still unpredictable.
Tech Giants post strong earnings
Meta Platforms Inc. shares surged about 8% in after-hours trading after the Facebook parent forecast first-quarter revenue above expectations. Tesla Inc. shares rose nearly 2% after hours following better-than-expected fourth-quarter results.
Investors are now focusing on upcoming results from Apple, Caterpillar, and Lockheed Martin. Apple’s earnings are particularly closely watched due to concerns about rising costs, while Caterpillar and Lockheed Martin will provide clues about industrial and defence sector demand.
Microsoft’s latest earnings show that the AI boom is working in its favour, but it comes with the high costs of expanding cloud infrastructure and the challenge of turning AI investments into lasting profits. Investors are keeping a close eye on Azure’s growth, OpenAI partnerships, and how quickly AI tools are being adopted to see if the company’s big spending will pay off down the line.