Shares of Microsoft ( MSFT ) and AMD ( AMD ) started off the trading day on Wednesday heading in opposite directions as Wall Street digested the companies’ Tuesday evening earnings. Microsoft fell some 7% in after-hours trading following its shaky report and continued trading down more than 1% Wednesday afternoon. AMD shares, on the other hand, jumped more than 3% , lifting fellow chip behemoth Nvidia ( NVDA ) as well.

The companies’ results and Wall Street’s reaction brought the two sides of the AI trade into stark relief as traders showed their disappointment in Microsoft’s AI software sales and exuberance over AMD’s chip sales.

The opposing views show how anxious investors are to see a sizable return on companies’ massive investments in the infrastructure needed to power their AI software offerings. On the flip side, chipmakers like AMD continue to reap the benefits of software makers’ AI infrastructure buildout, sending revenue and shares higher.

In an investor note following Microsoft’s announcement, Jefferies analyst Brent Thill noted that Microsoft’s Azure revenue slowed in the quarter from 31% in Q3 to 30% in Q4, and is expected to continue slowing in Q1.

And while Microsoft said it expects to see improvements in Azure growth in the second half of its current fiscal year, investors’ reactions to the company’s slight miss on Intelligent Cloud revenue, which includes its Azure platform and analysts’ repeated questions about when Microsoft will start raking in cash from AI sales, shows Wall Street won’t wait forever for the AI trade to pay off.

Microsoft’s miss and future promises

Microsoft’s fourth quarter earnings were largely positive despite its Intelligent Cloud numbers, and even those weren’t awful. The company reported Intelligent Cloud segment revenue of $28.5 billion, just shy of Wall Street’s expectations of $28.7 billion, but up 19% year over year. Overall revenue came in at $64.7 billion versus an expectation of $64.5 billion.

But Microsoft also continues to plow cash into building out its AI data centers. According to CFO Amy Hood, Microsoft’s capital expenditures, including finance leases, topped out at $19 billion, up from $14 billion in the third quarter.

“This new figure requires faith that Microsoft is picking up sufficient demand signals, and in our view the ‘return on capex’ concerns are likely to persist,” UBS Global Research analyst Karl Keirstead wrote in an investor note following Microsoft’s earnings announcement.

Still, Microsoft pointed to a number of bright spots in its AI business, noting that AI contributed 8 percentage points of growth to Azure revenue, up from 7 percentage points in Q3 and 1 percentage point in Q4 last year.

The Windows maker also noted that it’s still dealing with supply constraints keeping more customers from gaining access to its AI products, which is one of the reasons for its massive AI spend. That bottleneck, however, should start to clear up sometime in the second half of 2025, the company said.

“We believe the results and outlook for Azure AI are especially strong in light of the capacity constraints [Microsoft] faced in [the fiscal fourth quarter] and expects to continue to see in 1HF25 [first half of 2025]. More positively, management expects these issues to be alleviated by 2HF25, which should help drive a reacceleration in overall Azure revenue growth,” Mizuho analyst Gregg Moskowitz wrote in a note to investors Wednesday.

AMD sets the stage for chip sales boost

While Microsoft shares struggled to gain traction Wednesday, AMD’s stock climbed more than 4% in mid-day trading Wednesday, driven by better-than-expected results from the company’s Data Center segment. AMD reported Data Center revenue of $2.8 billion, beating analysts’ expectations of $2.75 billion, and climbing 115% year over year from $1.3 billion in Q2 last year.

Microsoft’s capital expenditure expansion also plays into AMD’s growth, since the cloud provider, and hyper scalers like it, will inevitably need to purchase graphics processing units (GPUs) and central processing units (CPUs) from the chip giant and its rivals, including Nvidia.

To that point, AMD raised its sales forecast for its AI chips for 2024 from $4 billion to more than $4.5 billion. We’re still a few weeks away from Nvidia’s earnings report on Aug. 28, but shares of the AI darling rocketed more than 10% on Wednesday on the strength of AMD’s results.

Of course, the AI trade is by no means settled, and we’re still in the early days of not only the infrastructure build-out, but also in understanding how the software will impact businesses big and small, as well.

And until AI hyperscalers like Microsoft, Google, and Amazon begin to see massive profits from their huge investments, you can expect investors to continue asking one question over and over again: “When’s the money coming in?”

@DanielHowley .

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