- Stock rallies 8% in pre-market trading to $297
- Azure growth, revenue and earnings all beat consensus
- ‘Microsoft is a business on the front foot again’ - analyst
How do you make $150 billion overnight. Be worth $2 trillion and beat earnings expectations, that’s what did it for Microsoft (MSFT:NASDAQ). The software colossus reported better-than-expected results after the closing bell on Tuesday (25 April), sending its’ share price up 8% in pre-market trading, implying $297.25, the highest in a year.
Perhaps analysts have been too gloomy. For example, Microsoft had already forecast that growth for its crucial cloud computing business Azure would slow to around 26% versus last year, but investors feared it would be worse. No wonder, then, they cheered Azure’s 27% growth.
The firm’s personal computing business – which features ChatGPT-powered search engine Bing – posted a smaller drop than expected.
Consulting firm Gartner estimates that companies will funnel over half of their IT spending into cloud technology come 2025, and that chunk could be even higher if artificial intelligence really takes off. No wonder, then, that investors are laser-focused on Azure’s performance - the cloud business will dictate the firm’s stock price for some time to come.
REVENUES & EARNING BEAT
Microsoft posted revenue and profit that easily glided over expectations. EPS (earnings per share) hit $2.45 versus $2.23 expected, with net income up 9% to $18.3 billion on revenues of $52.86 billion, against a $51.02 consensus. Sales rose 7% year-on-year, albeit flat on the previous quarter.
Slowing PC sales is not helping Windows income but its productivity suite, including Office and LinkedIn, saw revenues increase 11%.
There will be plenty more spending on AI, which looks likely to swallow more cash more than it generates for now, but investors shouldn’t expect AI numbers to be broken out any time soon.
‘While AI is primarily driving conversation rather than being a financial driver for Microsoft at the moment, it will at some point likely replace the Cloud narrative that has driven Microsoft now for several years,’ said Megabuyte analyst Lee Prout.
SENTIMENT IS CHANGING TOWARDS TECH
‘It certainly feels like Microsoft is a business on the front foot again when it comes to technology evolution.’
With Google-owner Alphabet (GOOG:NASDAQ) also beating and rising overnight, tech earnings are off to a promising start. We’ll find out this evening and tomorrow if Meta Platforms (META:NASDAQ) and Amazon (AMZN:NASDAQ) continue that trend.
‘The tech giants have been through a major sell-off partly driven by interest rate rises and worries about inflation but investors are going long now on the basis that the brutal cost-cutting will pay off,’ said Will Rhind, founder and CEO of GraniteShares.
‘The short-term concern remains about interest rates and inflation but longer term it seems investors are still supportive.’
UPDATE: The UK Competition and Markets Authority has blocked Microsoft's landmark deal to buy gaming company Activision Blizzard (AVTI:NASDAQ) on concerns it would reduce innovation and choice for UK consumers.
Activision shares slumped 10% to $77.81 in pre-market trading.
