Shares of Microsoft $MSFT fell as much as 4% in extended trading Tuesday after the software maker issued a quarterly revenue forecast that fell short of analysts' expectations.

Earnings: $2.69 per share versus $2.55 per share as expected by Refinitiv.
Revenue: $56.19 billion versus $55.47 billion as expected by Refinitiv.

On a conference call with analysts, Amy Hood, Microsoft's chief financial officer, said revenue for the fiscal first quarter will be $53.8 billion to $54.8 billion. The midpoint of that range, $54.30 billion, represents 8% growth and falls short of the consensus of $54.94 billion among analysts polled by Refinitiv. The Windows operating system segment fell short of the $12.5 billion to $12.9 billion in revenue, below the $13.22 billion expected by analysts surveyed by StreetAccount.

In the fiscal fourth quarter, which ended June 30, sales increased 8% year over year, according to the statement. It was the first time since 2017 that growth has been below 10% for three consecutive quarters. Net income reached $20.08 billion, up from $16.74 billion, or $2.23 per share, in the year-ago quarter.

Microsoft's Intelligent Cloud segment contributed $23.99 billion in revenue, up 15% and above the consensus of analysts polled by StreetAccount, which was $23.79 billion. That unit includes Azure public cloud, SQL Server, Windows Server, Visual Studio, Nuance, GitHub and enterprise services.

Azure revenue grew 26% during the quarter, faster than the 27% growth in the prior quarter and 40% growth in the year-ago quarter. Analysts polled by CNBC and StreetAccount expected 25% growth for Azure, which competes with Amazon Web Services and Google Cloud Platform.

Microsoft does not report quarterly revenue from Azure in dollars. But on a conference call with analysts, Microsoft CEO Satya Nadella said that "annual revenue from Microsoft Cloud exceeded $110 billion, a 27% increase in constant currency, with Azure accounting for more than 50% of total revenue for the first time."

Google parent company Alphabet said Tuesday that revenue from its cloud products, which include Google Workspace productivity apps in addition to Google Cloud Platform, grew 28%.

Driven by concerns about the worsening economic situation, organizations using cloud services from Microsoft, Amazon and Google have taken time over the past few months to adjust their existing workloads to cut costs.

"As expected, we saw a continuation of the optimization trends and new workloads in Azure from the previous quarter," Hood said on the call.

With more cautious spending on the cloud, three major U.S. cloud providers cut their own spending.

For the first time since 2016, Microsoft's research and development costs fell year-over-year. In May, Nadella told employees that the company would not raise salaries this year. And on July 10, he issued a memorandum about a new round of layoffs separate from the round of layoffs that affected 10,000 employees that started in January.

Microsoft's Productivity and Business Processes segment, which includes productivity software Office, LinkedIn and Dynamics, had revenue of $18.29 billion, 10% higher than the StreetAccount consensus of $18.06 billion.

The More Personal Computing segment, which includes Windows, devices, games and search advertising, posted sales of $13.91 billion. This division declined 4% year-over-year, but still beat StreetAccount's consensus of $13.58 billion.

Sales of Windows licenses to device makers fell 12%, a better result than management expected, Hood said. Consumers and businesses rushed to buy PCs after Covid's arrival, making comparisons over the past year difficult. Research firm Gartner, which covers the technology industry, estimated that shipments of personal computers, including Apple's MacBooks, fell about 17% during the quarter.

Microsoft and Alphabet kicked off the earnings season for the tech mega-cap. Investors will be watching for updates on cost-cutting measures introduced at the start of the year and the impact of AI investments on profitability at the big tech companies.

Alphabet beat estimates on Tuesday, sending its shares higher during afternoon trading. Facebook parent Meta will report results on Wednesday, with Amazon and Apple to follow next week.

Investors are anxiously awaiting the resolution of Microsoft's nearly $69 billion deal to buy Activision Blizzard, which was agreed to in January 2022. Earlier this month, an appeals court rejected a Federal Trade Commission motion to halt the deal. Activision shares have climbed above $92.50, close to the $95 that Microsoft agreed to pay, reflecting optimism that the deal is on track to close.

The company said its operating expenses rose about 2% in the quarter, partly due to a charge for paying a fine from the Irish Data Protection Commission after the authority investigated whether LinkedIn's unit violated the European Union's General Data Protection Regulation.

During the quarter, Microsoft built on its broad alliance with OpenAI to take advantage of the new interest in artificial intelligence that came after the startup's November launch of its ChatGPT chatbot. Microsoft unveiled a chatbot powered in part by OpenAI's language models to help workers navigate their employers' data, and told developers they will be able to create plug-ins that people can access through ChatGPT, Bing's search engine chatbot and other tools.

Microsoft's Azure OpenAI service, which companies can use to access language models and other developer tools, now has more than 11,000 customers, up from 4,500 in May, Nadella said.

Hood said that as Microsoft invests to meet growing demand for AI services, the company should see the impact of higher revenue in the second half of fiscal 2024 rather than the first half.

"Even with strong demand and leadership, growth from our AI services will be incremental as Azure AI expands and our copilots achieve general availability data," she said. Microsoft has not indicated when Copilot Assistant for its Microsoft 365 productivity apps will be available for purchase for all customers. The features will cost $30 per person per month in addition to an existing Microsoft 365 subscription, the company said last week.

According to Hood, Microsoft's Azure services should grow 25 to 26 percent in constant currency in the first fiscal quarter, with 2 percentage points coming from AI services, up from 1 percentage point in the fourth fiscal quarter.

Excluding post-earnings movements, Microsoft shares have gained 46% year-to-date, while the S&P 500 index is up 19%