Microsoft shares fell on Tuesday as the company reported a slowdown in growth of parts of its business, despite the company’s various investments in AI including its partnerships with OpenAI and Meta.
The tech firm beat Wall Street expectations with $56.2bn in revenue, but its latest earnings report showed slowing revenue growth for its cloud service Azure. Revenue from Azure only grew 26% in the fourth quarter of the year, compared with 27% in the previous quarter.
Microsoft’s earnings report comes at a closely watched moment in the AI arms race. Tech firms have seen their valuations rocket as rapid investments in AI-powered technology – such as Microsoft’s revamped Bing search engine chatbot – come to fruition. Many see this quarter as a test of whether tech companies are able to come through on those promises.
The company has made several announcements in the last few weeks that have bolstered the firm’s position in the closely watched space.
“Organizations are asking not only how – but how fast – they can apply this next generation of AI to address the biggest opportunities and challenges they face – safely and responsibly,” said Satya Nadella, the chairman and chief executive officer of Microsoft, in a release announcing the earnings. “We remain focused on leading the new AI platform shift, helping customers use the Microsoft Cloud to get the most value out of their digital spend and driving operating leverage.”
Microsoft has spread its AI bets across the industry. Most recently, the company partnered with Meta to release the social network’s open source large language model Llama 2, which would be free for commercial or developer use. The company also extended its partnership with OpenAI earlier this year, with the ChatGPT creator providing AI capabilities for Microsoft Azure and various AI tools. Some experts say these partnerships position the company to get ahead of its competitor, Google, which also reported quarterly earnings on Tuesday.
“Microsoft is advancing its search advertising business and commercializing generative AI in ways that Google is yet to master,” Insider Intelligence principal analyst Jeremy Goldman said in a statement.
Google, meanwhile, saw its shares riseafter it released its earnings report. The company beat Wall Street expectations and saw growth in revenue that was partly attributed to increased demand for its cloud services which is expected to continue to grow as AI tools are implemented and adopted.
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