Microsoft Q1 results top estimates but AI capacity constraints remain; stock down

Investing.com -- Microsoft reported Wednesday fiscal first-quarter results that topped Wall Street estimates, underpinned by growing contribution from the tech giant's AI services.

Microsoft Corporation (NASDAQ:MSFT ) fell 4% in premarket trading Thursday. 

The company reported Q1 earnings per share of $3.3 on revenue of $40.59 billion. Analysts polled by Investing.com anticipated EPS of $5.21 on revenue of $40.18B.

The beat was supported by growing contribution to growth from the tech giant's artificial intelligence related offerings.  

Azure, Microsoft's cloud business grew 33%, just above analyst estimates of around 32%.

Growth in Azure benefiting from 12 points of contribution from AI services (vs. 11-points last quarter), equating to ~$1.5B in quarterly revenue (by our estimate)," RBC said in a Wednesday note.

Fully burdened CapEx came in high, at $20.0B, RBC said, adding that it was a factor likely weighing on the stock during after-hours trading.

Also commenting on the report, Barclays analysts said in a post-earnings note they "fear the wait will continue for MSFT's shares."

"Short term supply issues around AI capacity are likely to cause stable Azure consumption trends in Q2 vs. Q1, which is solid but not necessary a new catalyst that gets investors excited," they noted.

"Things should get better in 2H, but investors will only find out about the magnitude of this re-acceleration in April 2025 when MSFT FY3Q numbers come out, leaving little to be excited about in the near term."

Separately, Morgan Stanley analysts led by Keith Weiss noted that demand signals for Microsoft remain strong, however, supply constraints "continue to limit growth in the GenAI-related businesses."

That being said, investors "should see rewards for waiting" as the company remains confident in the capacity ramp in the second half of the year.

Yasin Ebrahim contributed to this report. 

Source: Investing.com