During Microsoft’s annual shareholder meeting in Bellevue, Wash. on November 30, 2016, CEO Satya Nadella attentively listens to an audience member’s question.
Image credit: Stephen Brashear | Getty Images News | Getty Images
Microsoft shares experienced a 3.7% decline on Wednesday following the company’s issuance of quarterly revenue guidance that fell short of expectations. While many analysts maintain an optimistic outlook for the company, a few have expressed concerns about the delayed realization of recent investments in artificial intelligence.
The growth of AI presents an opportunity for Microsoft to enhance its two largest businesses: the Azure public cloud and its market-leading Office productivity software.
To facilitate the provision of AI services to external developers and the integration of assistant capabilities into apps like Word and Outlook, Microsoft has been increasing its capital expenditures. However, this additional spending has impacted the company’s cloud gross margin.
In a recent call, Microsoft’s finance chief, Amy Hood, stated that the growth from AI services would occur gradually as Azure AI tools gain popularity and products like the Microsoft 365 Copilot become widely available. Hood expects the impact of these AI investments to be most significant in the second half of Microsoft’s current fiscal year, which ends in June 2024.
Following Hood’s comments, JPMorgan and UBS analysts, both with buy ratings on Microsoft stock, acknowledged the need for adjusted revenue expectations but recognized that the messaging was aimed at managing rather than inflating expectations.
Companies in the productivity software sector, including Atlassian, have been incorporating generative AI features into their products. Delays in Microsoft’s release of its Office suite could cause the company to miss out on this clear growth opportunity.
Despite the delayed impact on revenue, analysts from Stifel and Raymond James remain optimistic about Microsoft’s future. They believe that, although it may take time for the revenue to materialize, Microsoft’s unique set of AI-infused cloud services positions the company to gain market share across various operating segments.
During the analyst call, Microsoft CEO Satya Nadella asserted Microsoft’s leadership position in the adoption of new AI workloads in the cloud, indicating that the anticipated growth is within reach.
– CNBC’s Michael Bloom contributed to this report.
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