Key Points
Its stock plunged by around 12% in the hour after the market opened on Jan. 29.
The diversified technology giant beat revenue and EPS expectations.
Investors aren't happy with Microsoft's increased spending with little to show for it.
To say that tech giant Microsoft (NASDAQ: MSFT) has seen better days would be an understatement. Roughly an hour after trading began on Jan. 29, its stock price plummeted 12%. It's one of the worst single-day drops in company history.
Whether this is a warning sign or a one-off event remains to be seen, but it's clear that expectations are resetting.
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Microsoft reported its earnings on Jan. 28, and they were good. Its $81.3 billion in revenue was $1.1 billion above expectations, and its $4.14 in earnings per share (EPS) were $0.22 above expectations. However, the problem -- or at least what investors perceived as one -- is Microsoft's excessive spending and Azure's seemingly hitting its growth ceiling.
In the latest quarter, Microsoft spent $37.5 billion on capital expenditures (most of which went to artificial intelligence infrastructure and data centers), up 66% from last year. With no clear answer on when these investments will pay off, some investors are getting impatient and worried about how it'll affect Microsoft's margins.
Azure's revenue increased 39% year over year (which is strong), but it won't be able to grow much faster because Microsoft doesn't have the physical capacity to currently meet demand. Investors have seemingly put Microsoft in the "don't tell me, show me" bucket.
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Stefon Walters has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
