Microsoft Corporation ( MSFT ) shares are trading lower on Thursday despite reporting strong fiscal first-quarter results that exceeded analyst expectations on both earnings and revenue.

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What To Know: Microsoft ( MSFT ) posted first-quarter earnings of $4.13 per share, beating analyst expectations of $3.67 by nearly 13% and showing a 23% jump from last year. Revenue came in at $77.7 billion, ahead of the $75.3 billion forecast and up 18% compared to the previous year.

Microsoft ( MSFT ) forecasted second-quarter revenue between $79.5 billion and $80.6 billion versus analyst estimates of $79.95 billion, according to Benzinga Pro.

Azure and other cloud services revenue surged 40% year-over-year, while Microsoft Cloud revenue climbed 26% to $49.1 billion. The company’s commercial remaining performance obligations increased 51% to $392 billion.

CFO Amy Hood acknowledged during the earnings call that Azure’s capacity shortfall likely prevented even stronger revenue performance in the quarter. When pressed by Deutsche Bank analyst Brad Zelnick to quantify the revenue impact, Hood explained that surging AI demand across Microsoft’s ecosystem has stretched cloud infrastructure to its limits.

“It’s always hard to quantify precisely what would have been the revenue impact in the quarter,” Hood said. “It is safe to say that the number could be higher.”

Hood noted that Microsoft ( MSFT ) has prioritized allocating resources to fast-growing AI-driven products first, including Microsoft ( MSFT ) 365 Copilot, GitHub and the company’s expanding security portfolio, as adoption and usage increases.

“We’ve worked very hard to try to mitigate it as best we can, but we have been short in Azure,” the CFO added.

Microsoft ( MSFT ) also reported a surge in capital expenditures to approximately $34.56 billion in the quarter and said that it expects spending to increase throughout the year, reversing previous guidance for spending to moderate, per Reuters.

Analyst responses are mostly positive, with Wells Fargo analyst Michael Turrin maintaining an Overweight rating while raising the price target to $700 from $675. Morgan Stanley analyst Keith Weiss kept an Overweight rating and increased the target to $650 from $625. Piper Sandler analyst Hannah Rudoff reiterated an Overweight rating with a $650 target and Raymond James analyst Andrew Marok maintained an Outperform rating, but reduced the target to $600 from $630.

MSFT Price Action: Microsoft ( MSFT ) shares were down 2.74% at $526.71 at the time of publication on Thursday, according to Benzinga Pro.

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