Microsoft shares slide as cloud forecast, AI spending disappoint

Microsoft forecast disappointing growth in its cloud computing business, sending its shares down 4.5%.

Microsoft on Wednesday forecast disappointing growth in its cloud computing business, sending its shares down 4.5% in after-hours trading as investors worry about big spending, elusive artificial intelligence revenue and competition from cheaper AI models from China.

Azure results for the fiscal second quarter also fell below Wall Street expectations. Despite beating quarterly overall sales estimates, investors want better results from the hundreds of billions of dollars that Wall Street heavyweights have been spending to build AI data centers and infuse their products with the emerging technology.

Chinese rivals have recently claimed to produce competing AI technologies at lower costs than U.S. rivals, sparking fears of a price war. For more than a year, Microsoft and its Big Tech peers have tested Wall Street's patience by plunking down huge amounts of cash in pursuit of profits from AI that have yet to satisfy investors.

"It's OK if that is a few years out, three to five years into the future," said Brian Mulberry, portfolio manager at Zacks Investment Management. "But we really want to start to see a clear road map to what that monetization model looks like for all of the capital that's been invested."

On a conference call with investors, Chief Executive Satya Nadella said costs were coming down, with models showing 10 times better performance for the price as Microsoft irons out the algorithms.

"As AI becomes more efficient and accessible, we will see exponentially more demand," Nadella said.

Microsoft Chief Financial Officer Amy Hood said Azure would grow between 31% and 32% in the current fiscal third quarter, below the 33% Wall Street expects, according to data from Visible Alpha.