Microsoft's stock (NASDAQ: MSFT) trades down 3.33% in this morning's pre-market, recouping some of the early losses seen as earnings were initially digested. The company beat on both top and bottom lines, yet the growth in Azure has slowed, owing to the decline.
In the recent fiscal report for Q2 FY25, Microsoft revealed that its Azure cloud computing division experienced slower growth, registering a 31% increase in cloud service revenue year-over-year. This growth rate marks a slight decline from the previous quarter's 33% and fell short of analysts' expectations of 31.9%.
Revenue for the period came in at $69.63 billion, a 1.2% beat on the $68.81 billion expected. EPS came in 3.6% above consensus estimates at $3.23 (vs $3.12). The previous quarter delivered earnings per share of $3.30, so Microsoft have seen a slight reduction on this key metric as investment continues.
Despite this, Microsoft’s strategic addition of third-party models like DeepSeek's R1 aims to invigorate the Azure marketplace and maintain a competitive edge.
The firm has recently made a strategic move to enhance its Azure cloud platform by integrating DeepSeek's R1 AI model. This addition has been extended to GitHub as well, where developers can access this resource. The inclusion of the R1 model is a significant expansion in Microsoft’s portfolio, which already features over 1,800 AI models. This integration emphasizes Microsoft's commitment to diversifying its AI offerings beyond those from OpenAI.
A noteworthy feature of the DeepSeek R1 model is its high performance and cost-effectiveness. It has quickly gained popularity, surpassing the downloads of ChatGPT on the Apple App Store, which signals strong market acceptance and user demand. Customers are anticipated to soon have the capability to run the R1 model locally on their Copilot+ PCs, addressing concerns related to privacy and data sharing.
Despite its advantages, DeepSeek R1 has come under scrutiny. Reports suggest that OpenAI found evidence indicating that DeepSeek might have utilized OpenAI’s proprietary AI models to train a competing system. This has raised concerns regarding the ethical use and development of AI models in the competitive landscape.
Microsoft continues to work with OpenAI, and with this news, is clearly looking to be at the forefront of the AI race, whoever comes out on top.
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