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In a year where hype over artificial intelligence has sent stocks soaring, Microsoft (MSFT) management reminded investors on its fiscal fourth quarter earnings call that the technology's contributions to revenue won't happen overnight.
"With strong demand and a leadership position, growth from our AI services will be gradual as Azure AI scales and our Copilots reach general availability dates," Microsoft CFO Amy Hood said on an earnings call Tuesday night. "So for FY'24, the impact will be weighted towards [the second half of the 2024 fiscal year]."
Microsoft's stock had shot up more than 40% on the year entering Tuesday's highly anticipated earnings report as the tech giant's investments in artificial intelligence have sparked investor interest. As recently as last week, a Microsoft AI product pricing announcement sent shares to all-time highs.
But on Tuesday's call, the AI hype failed to send the stock higher, as slowing Azure growth sent shares more than 3% lower on Wednesday morning.
"Q4 results were satisfactory, but lacked the spice investors may have been salivating for following a blistering pace of GenAI + new product innovations and press releases during the quarter," Citi analyst Tyler Radke wrote in a note on Wednesday morning.
On July 18, Microsoft announced pricing for its Copilot product that will bring AI solutions to its Microsoft 365 customers. Wall Street analysts celebrated the announcement by boosting their 12-month price targets, projecting shares would continue to rise higher.
On Tuesday night's earnings call Microsoft management tempered those expectations, emphasizing AI would be a key growth driver moving forward, just not necessarily in the immediate quarter. Hood noted that the demand and customer reaction for Copilot has been "encouraging."
But first, the company has to work through its paid preview of the product and receive feedback. Then, there will be a general availability date released followed by a general audience release. Hood didn't give a specific timeline for the process.
"Then, we'll of course be able to sell it and recognize the revenue," Hood said, adding: "I do think this is really about pacing."
Jefferies analyst Brent Thill noted that the commentary around when AI will push revenues "may have been later than some investor aspirations, although [the] timing remains logical as this is a decade-long transformation."
Microsoft CEO Satya Nadella began Tuesday's call by highlighting the various AI triumphs for the company that many on the Street view as an AI leader. More than 11,000 organizations including Ikea and Volvo are using Azure Open AI service. More than 27,000 organizations including Airbnb and Dell are using Microsoft's GitHub Copilot, which includes a ChatGPT-like assistant.