Microsoft's fiscal fourth-quarter earnings report presented a mixed picture, causing the market to react sharply. Although total revenue and earnings per share exceeded expectations, Microsoft shares fell 7% in after-hours trading due to the poor performance of its cloud business.

As of 20:47 GMT, Microsoft was trading at $399.50 after hours, down $23.42, or 5.54 percent.

Earnings highlights

Microsoft's total revenue rose 15 percent year-over-year to $64.73 billion during the quarter ended June 30, beating estimates of $64.39 billion. Earnings per share came in at $2.95, beating estimates of $2.93. Net income rose to $22.04 billion, up from $20.08 billion in the same period last year.

Cloud business performance raises concerns

Revenue from the Intelligent Cloud division, which includes Azure, Windows Server, Nuance and GitHub, came in at $28.52 billion, below analysts' expectations of $28.68 billion. growth in Azure and other cloud services was 29 percent, below expectations of 31 percent. The underperformance of the cloud business, especially Azure, was the focus of investor attention.

Segment performance

Revenue in the Productivity and Business Processes segment (which includes Office software and LinkedIn) grew 11% to $20.32 billion. Revenue in the Personal Computing segment (which includes Windows, gaming and search advertising) grew 14% to $15.9 billion, beating expectations.

Artificial Intelligence Integration and Market Competition

Microsoft reported that 8 percentage points of Azure's 29 percent growth came from AI services, highlighting the company's investment in artificial intelligence. Microsoft is competing with Amazon AWS and Google for AI workloads, with all three companies investing heavily in AI capabilities.

PC market picks up

The stabilization of the PC market supported Microsoft's results, with Windows license sales up 4%.Gartner estimated PC shipments grew 1.9% in the fiscal fourth quarter, an improvement from 0.9% in the previous quarter.

Market Expectations

Despite the overall strong performance, a slowdown in the cloud business clouded Microsoft's short-term outlook. The market reaction shows a short-term bearish sentiment towards the cloud business. Investors are likely to keep a close eye on Microsoft's AI strategy and its ability to accelerate growth in the cloud business. The tech sector is likely to see some volatility as the market digests these results and their impact on the broader market.