Microsoft Corp (NASDAQ:MSFT) is expected to shed up to $81 billion in market value when US trading commences on Wednesday.
The 2.6% pre-market fall in the Redmond megacap’s share price is due to revenue concerns in its Azure cloud-computing segment.
Intelligent Cloud revenue in the fourth quarter, which includes Microsoft's AI-powered Azure Cloud computing platform, was $28.5 billion, up 19% year-over-year but short of estimates of $28.7 billion.
This knee-jerk market reaction highlights what some see as myopia at the heart of the investment community, though many big tech companies are seen as 'priced for perfection' meaning anything slightly below par is punished.
Microsoft’s fourth-quarter revenues actually surpassed market expectations, as did earnings, and analysts roundly applauded the solid set of financial results.
As Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: “This was a good set of results from Microsoft; don’t let anyone tell you otherwise.”
But, as Britzman added, “cloud growth is all that seems to matter these days, and despite Azure growing 30%, it was a mere 1% lower than expected and that was enough to send the stock lower”.
He continued: “Investors need to remember that megatrends like AI take time, rarely track in a perfect line, and bumps in the road are part of the journey.
“Names like Microsoft had been priced assuming a near-perfect transition to an AI-dominated world.
“This is a healthy adjustment of near-term expectations, not the end of the AI trade. Microsoft will still be a leader when the dust settles.”
Dan Coatsworth, investment analyst at AJ Bell, pointed out the fickle attitude among tech investors in the current AI boom.
“It’s no longer enough for the big tech companies to beat earnings or sales expectations. Each part of a business has to be moving with strength and stamina, otherwise the market will start finding fault,” said Coatsworth.
“Investors are increasingly nervous about the tech sector and it only takes one small bit of bad news from a major player to increase anxiety levels across the market,” he added.
Microsoft’s share repricing is a perfect exemplar of that.