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Microsoft’s (MSFT+1.05%) fiscal first-quarter results surpassed Wall Street’s expectations — but data center constraints left investors unimpressed.
The tech giant’s shares were down over 5% during trading on Thursday, while the Dow Jones Industrial Average, Nasdaq, and S&P 500 also fell on weaker-than-expected results from Microsoft and Meta (META+0.24%).
The company reported revenues of $65.6 billion for the first quarter of fiscal year 2025 — a 16% increase from the previous year. Operating income grew 14% year over year to $30.6 billion, Microsoft said, while net income and earnings per share also increased 11% and 10%, respectively.
Microsoft Cloud revenue was $38.9 billion for the quarter ended in September — a 22% increase year over year — due to “[s]trong execution by our sales teams and partners,” Amy Hood, Microsoft Chief Financial Officer, said in a statement.
Investors were focused on potential growth for Microsoft’s cloud computing platform, Azure, in the fiscal first quarter, as well as “reaffirmation of guidance for Azure to reaccelerate” in the second half of the fiscal year, analysts at Jefferies (JEF+1.73%) said in a pre-earnings note.
However, Hood said Azure growth was “similar to last quarter,” and that “demand continues to be higher than our available capacity.”
Microsoft’s “inability to build data centres fast enough has constrained its guidance for the coming quarter,” Richard Windsor, founder of Radio Free Mobile, said in a note.
During a post-earnings call with analysts, Microsoft CEO Satya Nadella said the company has run into external constraints due to high demand for artificial intelligence training and inferencing.
“[Data centers] don’t get built overnight,” Nadella said. “Even in Q2 for example, some of the demand issues we have, or rather our ability to fulfill demand is because of, in fact, external third-party stuff that we leased moving up. That’s the constraints we have.”
Azure revenue grew 34% year-over-year in the first fiscal quarter, beating expectations of 33%, analysts at Jefferies and Bank of America Global Research (BAC-0.24%) said in post-earnings notes. However, revenue is expected to grow between 31% and 32% in the second fiscal quarter, Microsoft said during its earnings call. Jefferies analysts said they “remain confident on MSFT as an AI winner.”
While the market was seemingly disappointed by the growth drop, Windsor said he sees it “as a very strong long-term sign.”
Microsoft will continue to need power and data centers “in the long run,” Nadella said. And despite a longer wait, Nadella said he feels “pretty good that going into the second half of even this fiscal year, that some of that supply demand will match up.”