Microsoft’s (MSFT) fiscal results for the first quarter exceeded Wall Street’s expectations — but data center constraints left investors unimpressed.

The tech giant’s shares fell more than 5% in trading on Thursday, while the Dow Jones Industrial Average, Nasdaq and S&P 500 also fell on weaker than expected results from Microsoft and Meta (META).

The company reported revenue of $65.6 billion for the first quarter of fiscal 2025 — up 16% from the previous year. Operating income grew 14% year over year to $30.6 billion, Microsoft said, while net income and earnings per share also rose 11% and 10%, respectively.

Microsoft Cloud revenue totaled $38.9 billion for the quarter ended in September — up 22% year-over-year — due to “(s)trong execution by our sales teams and partners,” said Amy Hood, Microsoft’s chief financial officer , in a statement.

Investors focused on potential growth for Microsoft’s cloud computing platform, Azure, in the fiscal first quarter, as well as “confirmation of guidance for Azure to accelerate again” in the second half of the fiscal year, analysts at Jefferies said (JEFF) was said in a pre-earnings note.

But Hood said Azure growth was “similar to last quarter” and that “demand continues to be higher than our available capacity.”

Microsoft’s “inability to build data centers quickly enough has limited its guidance for the coming quarter,” Richard Windsor, founder of Radio Free Mobile, said in a note.

During a post-earnings call with analysts, Microsoft CEO Satya Nadella said the company has faced external constraints due to high demand for artificial intelligence training and inference.

“(Data centers) are not built overnight,” Nadella said. “Even in the second quarter, some of the demand issues we’re having, or rather our ability to meet demand, is due to external third-party stuff that we’ve leased moving up. Those are the constraints we have.”

Azure revenue rose 34% year over year in the fiscal first quarter, beating expectations of 33%, according to analysts at Jefferies and Bank of America Global Research (BAC) is said in notes after winning. However, revenue is expected to grow between 31% and 32% in the fiscal second quarter, Microsoft said during its earnings call. Jefferies analysts said they “remain confident in MSFT as an AI winner.”

While the market was seemingly disappointed by the growth drop, Windsor said he sees it “as a very strong long-term sign.”

Microsoft will continue to need power and data centers “for the long term,” Nadella said. And despite a longer wait, Nadella said he feels “pretty good that in the second half of even this fiscal year, some of the supply demand will match.”

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