Microsoft's Market Cap Drops $357 Billion as Stock Sees Largest Decline Since 2020

• Microsoft's CFO stated Azure growth could have exceeded 40% if the company had allocated more GPU capacity to customers instead of prioritizing internal AI applications like Microsoft 365 Copilot
• Analysts questioned Microsoft's strategy of securing AI computing capacity for products that haven't become breakout hits, with UBS noting that Copilot usage has not ramped as strongly as expected
• The implied operating margin and More Personal Computing segment revenue guidance of $12.6 billion both fell short of analyst expectations of $13.7 billion

Microsoft Market Cap Drops $357 Billion on Earnings Miss

Key Developments:

Microsoft experienced its largest single-day stock decline since 2020, erasing $357 billion in market capitalization and leaving the company valued at $3.22 trillion as of Thursday's close.

Financial Performance Issues:

The software giant's quarterly results revealed several shortcomings:

• Azure cloud services growth came in at 39%, missing the 39.4% StreetAccount consensus
• More Personal Computing segment guidance of $12.6 billion fell short of the $13.7 billion consensus
• Operating margin guidance for the upcoming quarter also disappointed

Core Problem:

CFO Amy Hood explained that Azure's growth could have exceeded 40% if Microsoft had allocated more GPU capacity to external customers instead of prioritizing internal AI applications. However, analysts question whether this internal allocation strategy is justified, particularly regarding Microsoft 365 Copilot, which hasn't gained traction comparable to OpenAI's ChatGPT.

Analyst Perspectives:

Ben Reitzes of Melius Research identified an "execution issue," stating Microsoft needs to accelerate data center construction. UBS analysts criticized the company's decision to reserve AI computing capacity for products showing weak adoption, demanding Microsoft "prove" these are worthwhile investments.

However, Bernstein analysts defended management's long-term strategic focus over short-term stock performance.

Market Context:

While Microsoft plummeted, the broader market showed mixed results, with Meta surging 10% on strong earnings. Microsoft announced capital expenditures will decline slightly in the current quarter, signaling potential capacity constraint relief ahead.