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Stock facing 4% decline despite 21% cloud growth / Image source: Adobe
  • Stock futures point to 4% declines
  • Results solid across the board
  • Analysts/fund managers throw support behind firm

It’s often the case that share prices react less to figures reported than the tone of the commentary and steer of what markets can expect down the line, and so it’s the case with Microsoft’s (MSFT:NASDAQ) latest earnings.

Stock futures point to a 4% decline (to $424.80) when Wall Street reopens later today after investors were spooked by slower growth from its Azure cloud computing arm. ‘Expectations for a beat are always high for Microsoft so this has been rather poorly received’, said Quilter Cheviot’s technology analyst Ben Barringer.

MICROSOFT’S AI GROWTH

The AI revolution was meant to have driven companies around the world to upgrade their infrastructure and processing capabilities, theoretically making cloud computing services a hot spot for significant growth.

Some will argue that Microsoft’s cloud revenue growth of 21% to $40.9 billion might suggest that large parts of the business world have been hesitant in committing to technology upgrades, but that would be a harsh assessment.

‘Microsoft has again shown itself as the staples kind of technology business with a continuing solid overall performance, also benefitting from cloud and AI developments’, said Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity (BPGM781) fund, sentiments echoed by Morningstar analyst Dan Romanoff.

‘Results look solid across the board, with good artificial intelligence demand and monetisation. With shares down after-hours, we continue to view the stock as attractive, and we think accelerating Azure revenue in the fourth quarter will help propel it higher over the next year.’

‘We see results reinforcing our long-term thesis, which centres on the expansion of hybrid cloud environments, the proliferation of artificial intelligence, and Azure.’

A CRUCIAL AI ENABLER

In truth, few global corporates are doing as much as Microsoft to put genuinely useful AI tools into the hands of users, or as effectively, but as AJ Bell’s investment director Russ Mould rightly says, ‘even revolutions don’t play out smoothly. There will always be bumps in the road.’

It is also worth noting that while acknowledging DeepSeek’s success, Microsoft seems relatively unphased given its view that it continues to see advances in both hardware and in software.

‘While these results are a little disappointing, there is nothing to panic about with Microsoft’, said Quilter Cheviot’s Barringer. ‘It remains a core, diversified way of playing growth in technology and AI given its strong position and recent valuations.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author (Steven Fraser) and the editor (Martin Gamble) own shares in AJ Bell.

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Issue Date: 30 Jan 2025