Microsoft's Ai Business Is Booming. It's Not Enough To Soothe Investors.

Microsoft reported earnings after the stock market closed on Wednesday.

Adek Berry/AFP via Getty Images

• Microsoft reported second-quarter earnings late Wednesday.
• The company's AI and cloud computing sales results were lower than analysts expected.
• Microsoft's stock was one of several hit after DeepSeek's AI model announcement on Monday.

Microsoft's earnings on Wednesday showed strong growth in its AI business — just not enough to reassure investors.

Sales tied to Azure and other cloud computing services grew 31% in fiscal Q2, slightly slower than the 31.8% analysts surveyed by Bloomberg estimated.

Meantime, CEO Satya Nadella said, "Already, our AI business has surpassed an annual revenue run rate of $13 billion, up 175% year-over-year."

Microsoft is "innovating across our tech stack and helping customers unlock the full ROI of AI to capture the massive opportunity ahead," he commented.

Shares of Microsoft slipped in after-hours trading on Wednesday. Executives will discuss the results during a webcast at 5:30 p.m. ET.

Tech executives, including Nadella, were expected to face scrutiny this earnings cycle about spending billions of dollars to build AI capabilities — and the returns from it. That pressure has been stepped up after Chinese company DeepSeek debuted a model that appears comparable to US rivals but seemingly costs less to train.

Microsoft CFO Amy Hood told employees in an internal memo to focus amid recent AI-related news, Business Insider reported.

Those concerns, and Microsoft's response to them, are a bigger story than the earnings numbers themselves, EMARKETER Senior Director of Content Jeremy Goldman said Wednesday. EMARKETER is a subsidiary of Axel Springer, which also owns Business Insider.

"Microsoft had a fine quarter, but 'fine' isn't what investors want from an AI juggernaut spending like it's building the Death Star," Goldman said. "The cloud is still a growth engine, but AI competition — especially from unexpected players like DeepSeek — is real."

Microsoft was one of several companies whose stocks fell on Monday after DeepSeek revealed its model. It has a multibillion-dollar investment in OpenAI. The selloff took a collective $1 trillion off US companies' market caps.