Weak Market Reaction to Microsoft’s Report

Microsoft released a strong quarterly report that exceeded analysts’ expectations on key metrics. However, the market reaction was the opposite: MSFT shares fell. At first glance, this seems illogical, but a closer look at the report reveals the reasons.

The company reported revenue of $81.3 billion, above the consensus forecast. Earnings per share came in at $4.14, also beating expectations. Azure deserves particular attention: the cloud segment grew 39% year-over-year. This confirms that Microsoft’s focus on artificial intelligence and cloud services continues to pay off. Another positive signal was the backlog, or RPO, of $625 billion, representing growth of more than 110%. Essentially, this is booked future revenue, providing the company with excellent visibility into earnings for years ahead. From a business quality perspective, there are almost no concerns.

Nevertheless, the market reacted with a decline in the stock price. The main reason was the management’s guidance for the next quarter. The Q3 forecast came in below Wall Street expectations. Investors saw a slowdown in revenue growth: previously, the company grew at about 17% per year; now it is around 15%. For a typical company, this is still an impressive figure, but for Microsoft, from which the market expects continuous acceleration amid the AI boom, it was insufficient.

Another pressure factor is capital expenditures. Microsoft is heavily investing in building data centers and AI infrastructure. This is strategically justified, but in the short term, it puts pressure on free cash flow. The market is currently highly sensitive to cash flow and efficiency, especially in a high-interest environment.

There is also a technical aspect. The stock trades below its 50- and 200-day moving averages. This signals that the stock is outside a stable uptrend, meaning that even good news is less enthusiastically received. In this phase, the market looks not just for strong reports, but for clear signs of acceleration.

The overall picture is as follows. Microsoft’s successes in AI and cloud are largely already priced in. Investors are no longer willing to pay a premium for “just good” growth. The market wants either acceleration of key metrics or a more optimistic forecast.

From an investor’s perspective, the conclusion is pragmatic. In the long term, Microsoft remains one of the strongest companies in the market, with a powerful business, diversified revenue streams, and leading positions in AI. Holding these shares in a portfolio makes sense. However, for new purchases, the timing is not ideal.

A rational strategy is to wait. Key signals would include a return above the 50-day moving average, stabilization of the Nasdaq index, and confirmation of sustained Azure growth in the next quarter. Until then, the market will likely continue to evaluate Microsoft based on timing, not business quality.

The takeaway is simple: Microsoft is an excellent company, but right now it is not the best entry point. The market votes for expectations, not fundamentals.