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Microsoft (Nasdaq: MSFT) stock was trending down roughly 2% Wednesday despite beating revenue and earnings estimates for Q2 2024.

The tech firm generated $64.7 billion in revenue in the quarter, up 15% year-over-year and beating estimates of $64.4 billion. Further, it made $22 billion in net income, or $2.95 per share, up 10% year-over-year and topping estimates of $2.94 per share.

Microsoft stock is up about 12% YTD, but shares were heading lower by about 2% in early trading on Wednesday.

High expectations for AI

The top and bottom-line numbers for Microsoft were typically solid, but investors saw some concerns within those results. The major issue was its AI-driven intelligent cloud business. Microsoft has thrived on its leadership in artificial intelligence to gain market share in its cloud computing business.

However, it may have created too high of an expectation around its Intelligent Cloud business in the fiscal fourth quarter. The segment, which includes its Azure gen AI platform, saw revenue increase 19% year-over-year to $28.5 billion. This was driven by Azure, where revenue jumped 29%.

These are impressive numbers, but analysts had expected more. Specifically, they targeted $28.7 billion in Intelligent Cloud revenue and a 31% increase in revenue from Azure. While demand for its AI services remained high, the company was slightly hampered by capacity constraints in the quarter, thus the slightly lower-than-anticipated results.

“We now have over 60,000 Azure AI customers, up nearly 60% year-over-year, and average spend per customer continues to grow,” Satya Nadella, chairman and CEO at Microsoft, said on the call with analysts.

The number of Azure AI customers also using data and analytics tools grew nearly 50% year-over-year, she added.

Outlook for fiscal 2025

The other reason the stock price may have dipped slightly was its outlook for Q1. The guidance called for $28.6 billion to $28.9 billion in Intelligent Cloud revenue, up from $28.5 billion last quarter. Within this, Azure is projected to see a 28% to 29% revenue increase.

However, revenue for Productivity and Business processes was expected to be flat or up slightly, while revenue from More Personal Computing is anticipated to decrease quarter over quarter.

As for the full year fiscal 2025 outlook, Microsoft expects double-digit revenue growth, higher capital expenditures, single-digit growth in operating expenses, and double-digit growth in operating income, with the operating margin down 1%.

Microsoft CFO Amy Hood said the company anticipates AI demand to continue to be impacted by capacity constraints in the first half of fiscal 2025.

“In H2, we expect Azure growth to accelerate as our capital investments create an increase in available AI capacity to serve more of the growing demand.”

Is Microsoft still a buy?

Generally speaking, any time there is a dip in Microsoft stock, investors should consider it a buying opportunity. Wednesday’s results aren’t much of a long-term concern as Microsoft continues to transition to an AI-driven Intelligent Cloud.

Some analysts lowered Microsoft’s price target post-earnings, including UBS, Citigroup, Morgan Stanley and DA Davidson, but it remains a buy across the board with a median price target of $489 per share, up 17% from the current price.

Year-to-date, Microsoft is up about 12%.

Microsoft’s valuation is already fairly reasonable with a P/E of 35 and a forward P/E of 31, but any chance to get this Magnificent Seven forever stock at a slightly lower price and valuation is a good one.

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