Microsoft Q4 Results: Will high AI spending drive Microsoft share price lower?

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Microsoft Q4 results

Microsoft share price was down almost 4% in pre-market trading on Jul 26, 2023 after the technology major reported results for the quarter ending June 2023. The share price fell as quarterly revenues fell short of analysts’ expectations. 

Microsoft’s revenues and net profit jumped, primarily taking support from its intelligent cloud segment and the company’s AI offerings, however, it failed to meet expectations.

Microsoft share prices have gained about 46.50% so far this year, according to data up to the closing session of Jul 25, 2023 and have risen about 39.33% over the past one year making it the 2nd most valuable company by market capitalization, due to the atomic rise in ChatGPT which is supported by Microsoft’s Azure.

Technology stocks have been rallying for this year driven by the AI enthusiasm in the market, with all major tech companies investing in AI technology and slowing rate hikes.

The long driven hype of AI has finally started giving results with companies posting higher results

Microsoft Q4: Historical share price performance

Microsoft Q4: Revenue

Microsoft’s revenue jumped by 8% which was below the analysts expectations. Quarterly revenue from Microsoft’s cloud computing platform Azure was below expectations due lower gross margins. 

The Productivity and Business Processes segment which comprises Windows operating system, LinkedIn, Office 365 among others reported a significantly higher jump from the corresponding quarter last year .

The Personal Computing segment which comprises Xbox, Windows OEM and devices saw a dropdown in this quarter.

 June 2022June 2023Percentage Change
Total Revenue$51.865 Billion$56.189 Billion+8%

Microsoft Q4: Net Profit

Strong Net profit Growth: Microsoft posted a net profit growth of 20% as Microsoft Cloud revenue drove upwards by 15% year-on-year.

 June 2022June 2023 
Net Profit$16.74 Billion$20.1 Billion+20%

Microsoft Q4: Revenue Breakdown

Intelligent Cloud segment performs: There was a 15.3% increase in the Intelligent Cloud segment owing to Microsoft’s Azure. However, the growth of Azure was only 26% as compared to 40% in June 2022.

Productivity and Business Processes segment: Revenue from Productivity and Business Processes was up 10% driven by Office 365. Linkedin revenue growth stood at 5% as compared to 26% in June 2022.Microsoft 365 Consumer subscribers stood at 67 million as compared to 59.7 million in June 2022.

More personal Computing segment revenue drops: Revenue from More personal Computing segment decreased by 4% driven down by Devices and Windows OEM. The revenue from Devices and Windows OEM dropped by 20% and 12% respectively.

 June 2022June 2023
Productivity and Business Processes (Office 365, Linkedin, etc.)$16.6 Billion$18.291 Billion
Intelligent Cloud (Azure and other cloud services)$20.804 Billion$23.993 Billion
More personal Computing (Windows OEM, Xbox, etc.)$13.905 Billion$14.461 Billion

Microsoft Q4: Dividends

Microsoft in its earnings presentation mentioned that it returned $9.7 billion back to its shareholders in the form of stock repurchases and dividends.

The latest dividend data is given below.


Microsoft Q4: Analyst View

  • Wedbush has an outperform rating with a price target of $400,implying a 14.2% upside from its closing price on July 25. 
  • Jefferies has a buy rating with a price target of  $400, implying a 14.2% upside from its closing price on July 25
  • Evercore ISI has an outperform rating with a price target $400,implying a 14.2% upside from its closing price on July 25
  • RBC Capital Markets  has an outperform rating with a price target $390, implying a 11.42% upside from its closing price on April 25.