Microsoft's stock experiences its worst day in two years following a disappointing forecast.

• On Friday, Microsoft's shares dropped over 5% because the company's guidance did not meet analysts' expectations.
• It's the steepest drop since October 2022.
• To top estimates, revenue growth of 16% was achieved in the quarter ending September.

Despite the company's better-than-expected earnings report, its stock experienced its steepest selloff in two years, as investors focused on the company's forecast for the current period.

On Thursday, Microsoft shares experienced a decline of more than 5%, marking their worst day since October 26, 2022, when they dropped 7.7%. This decline occurred just a month before the public release of ChatGPT from Microsoft-backed OpenAI, an event that sparked a surge in artificial intelligence investments.

Microsoft predicted revenue growth of 10.6% for the period ending in December, with a range of $68.1 billion to $69.1 billion. Analysts surveyed by LSEG expected revenue of $69.83 billion.

Azure, Microsoft's cloud infrastructure business, experienced a 33% increase in revenue. CFO Amy Hood stated on the analyst call that growth in constant currency is expected to be between 31% and 32% in the fiscal second quarter.

On Tuesday, reported 35% annual growth in its rival cloud business to $11.35 billion. After the close on Thursday, the leader in the cloud infrastructure market, , will report its results.

Analysts at BofA Global Research view Q1 results as solid across the core Azure and Office growth businesses, but they temper their outlook for Q2. Despite this, they still recommend buying the stock.

LSEG reported that fiscal first-quarter revenue increased by 16% from the previous year to $65.59 billion, surpassing the average analyst estimate of $64.51 billion. Additionally, earnings per share came in at $3.30, which was higher than the $3.10 average estimate.

In the current quarter, net income increased by 11% to $24.67 billion from $22.29 billion in the previous period.

Due to delays from outside suppliers in providing data center infrastructure, Microsoft will not be able to fulfill demand in the fiscal second quarter.

CEO Satya Nadella stated on the earnings call that he is optimistic about the supply-demand balance in the second half of this fiscal year.

Microsoft's AI investments remain a significant focus for investors, as the company continues to expand its infrastructure and increase chip spending to handle more demanding workloads. The company recently invested nearly $14 billion in OpenAI, which was valued at $157 billion in a recent financing round.

The AI startup's investment is expected to result in a $1.5 billion loss to the company's income in the current period, according to Hood's statement on the call.

Meanwhile, spending on property and equipment grew 50% year over year to $14.92 billion, which was higher than the consensus among analysts polled by Capital IQ, which predicted $14.58 billion.

By midday on Thursday, Microsoft's stock had risen by more than 9% for the year, while the Nasdaq had increased by 21% during the same time frame.

— CNBC's Ari Levy contributed to this report

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