Microsoft, AI ETF Bellwether, Dips After 4Q Earnings
Microsoft’s fiscal fourth-quarter earnings report may have far-reaching implications for artificial intelligence ETFs.
Microsoft reported better-than-expected earnings and revenue for its fiscal fourth quarter, with earnings per share of $2.95 versus $2.93 expected, and revenue of $64.73 billion versus 64.39 billion expected.
However, the company's shares fell 5.6% in extended trading as Azure cloud revenue growth of 29% fell short of the 31% analyst expectations. The company noted that 8 percentage points of Azure’s growth came from AI services.
As a leader in AI technology and investment, Microsoft Corp.’s results may push stocks of rival companies higher or further dampen eroding enthusiasm for the broad AI sector. That waning support can be seen in the AI proxy VanEck Semiconductor ETF (SMH), which dropped more than 3% today, on top of its one-month decline to 8.5%.
Redmond, Washington-based Microsoft itself has dropped 4.9% this month through yesterday.
Investors are scanning two aspects of Microsoft’s report: revenue generated from AI-related products and services, and the company’s planned expenditures on AI development. In the previous quarter, Microsoft reported capital expenditures, including finance leases, of $14 billion as it continued to build out its AI infrastructure.
The tech giant has made substantial investments in AI research development, notably through its partnership with OpenAI, the creator of ChatGPT. Microsoft has also integrated AI capabilities into its Azure cloud platform and Office productivity suite, potentially impacting user experience and revenue streams.
AI ETFs in Focus
Several ETFs stand to be affected by Microsoft’s earnings report, including SMH, which holds $21 billion in assets and largely invests in semiconductors that are critical to AI.
Other AI-focused ETFs may be affected by Microsoft’s results. The Global X Robotics & Artificial Intelligence ETF (BOTZ) fell 1.3% today and the IShares Robotics And Artificial Intelligence Multisector ETF (IRBO) lost 0.6%, both before results were announced.
Strong earnings from Microsoft might also prompt investors to shift their portfolios, favoring AI-focused investments over other tech sectors, potentially reshaping the tech investment landscape.
The results may offer clues about the broader AI market. Microsoft’s spending on AI infrastructure and its revenue from AI-powered products could indicate the technology’s current profitability and future potential.
Microsoft’s earnings will also impact broader technology ETFs with significant holdings in the company. The Technology Select Sector SPDR Fund (XLK), which allocates 22% to Microsoft, fell 2.5% today. Similarly, the IShares Global Tech ETF (IXN) and IShares Global Tech ETF (VGT), with Microsoft weightings of 18% and 17% respectively, both dipped about 2%.