Microsoft Shares Drop on Cloud Growth Concerns and Margin Pressure

Microsoft Corp. shares tumbled 7% in extended trading after reporting slower-than-expected growth in its Azure cloud division and narrowing operating margins. While revenue climbed 16.7% to $81.3 billion and earnings per share reached $4.10—both surpassing analyst estimates—investors focused on decelerating momentum in the tech giant's Core cloud business.

Azure revenue growth of 37-38% fell slightly short of projections, signaling potential saturation in enterprise cloud adoption. The segment now faces concentration risk, with OpenAI's $250 billion cloud commitment representing 45% of Microsoft's commercial backlog. Meanwhile, tepid adoption of Microsoft 365 Copilot suggests third-party AI tools may capture more enterprise demand.

Operating margin guidance of 45.1%—the lowest in three years—reflects rising infrastructure costs and a shifting revenue mix. The results underscore the challenges facing even dominant tech players as cloud computing matures, with implications for how investors value growth trajectories in the sector.