Microsoft Corp. (MSFT.O) posted results on Tuesday that showed some strength in a weak economy. This was helped by a cloud business that met Wall Street’s goals for the end of 2022, but it may not meet expectations in the current quarter.
Fears that customers would cut back on spending would harm big tech companies’ lucrative cloud business were alleviated by the relatively stable outlook.In the fiscal second quarter, which ended on Tuesday, cloud sales made up for some weakness in the PC business.
“The small miss on Microsoft’s cloud earnings forecast is likely just a reflection of the new economic reality that businesses are facing and not a sign of something worse,” said Bob O’Donnell, chief analyst at TECHnalysis Research.
Related: From the cloud to PCs, Microsoft’s predictions scare investors as the economy gets worse.
After the results, Microsoft’s shares went up by 4% at first, but then they went down by 1% to $239.58 in after-hours trade. In the past year, the stock has dropped 18%.
Microsoft announced last week that it was laying off over 10,000 people to get through these tough times. This is similar to what other big tech companies have done. It made more money than Wall Street thought it would in the second quarter of the fiscal year.
It said that revenue from its so-called “intelligent cloud” business would be between $21.7 billion and $22 billion in the third quarter. This was just below the average estimate of $22.14 billion by analysts, which was reported by Refinitiv. In the second quarter, this segment’s $21.5 billion in sales was a little better than expected.
The cloud business is back in the news after the chatbot ChatGPT went viral. ChatGPT uses artificial intelligence to answer general questions in plain language. The bot was made by the startup OpenAI, which is heavily backed by Microsoft and uses a lot of cloud computing services.
Brett Iversen, who is in charge of investor relations at Microsoft, said of OpenAI, “There are a lot of ways we can use that technology, either in new products or to improve products we already have.” He said that in the future, Microsoft’s Azure cloud service would get money from businesses that had something to do with OpenAI.
During the earnings call, CEO Satya Nadella said it was too early to separate AI from the workloads on the Azure cloud.
Visible Alpha estimates that the sales of Azure cloud products went up 31% in the second quarter. Amazon Web Services (AMZN.O), the market leader, is gradually losing market share to it (AWS).
BofA Global Research predicts that by the end of 2022, Azure will have 30% of the market for cloud computing. This is up from 20% in 2018. During the same time, AWS went from 71% to 55%.
According to Refinitiv IBES, the average analyst’s prediction for Microsoft’s sales in the three months ending Dec. 31 was $52.94 billion. However, Microsoft’s sales rose 2% to $52.7 billion. Net income dropped by 12% to $16.4 billion, but the adjusted income of $2.32 per share was higher than the consensus estimate of $2.29 on Wall Street, according to calculations by Refinitiv.
Related: Amazon and Google criticise Microsoft’s cloud computing adjustments.
As the PC market continued to shrink, sales in Microsoft’s More Personal Computing segment, which includes Windows, devices, and search, went down 19% to $14.2 billion. In the current fiscal third quarter, the company thinks that sales will drop to between $11.9 billion and $12.3 billion.
