Microsoft stock slammed by cloud-growth fears, taking Amazon down with it

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Shares of Microsoft Corp fell more than 6% in after-trade Tuesday as the company’s cloud-computing growth took a sudden hit and executives expected holiday season revenue to fall by more than $2 billion. directed to.

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The Azure cloud-computing business has become the largest and most important business for Microsoft MSFT,
And there are concerns about cloud growth as the US faces a potential slowdown for the first time since the technology has become ubiquitous. Microsoft executives said Azure grew 35% in its fiscal first quarter, a marked slowdown from Azure’s 40% growth in the previous quarter, as well as 50% growth from the same quarter last year; Analysts were expecting an average of 36.5% growth, according to FactSet.

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Opinion: The cloud boom is coming back to Earth, and it could be scary for tech stocks

In the current quarter, Chief Financial Officer Amy Hood suggested a similar sequential decline is in store for Azure, adding that percentage growth should drop by five points on a constant-currency basis. Hood also suggested that there could be more cost-cutting for Microsoft, after the company confirmed layoffs of fewer than 1,000 employees earlier this month.

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“While we continue to help our customers do more with less, we will do the same internally,” she said. “And you should expect to see our operating-expense growth moderate over the course of the year, while we remain focused on increasing productivity from the significant head-count investments we made over the past year.”

Microsoft shares fell more than 6% in after-hours trading after Hood’s forecast was provided in a conference call. The stock closed at $250.66, up 1.4%.

Concerns about cloud growth were immediately addressed by Azure’s biggest competitor, Amazon Web Services, Inc. Stock spread as AMZN,
fell more than 4% in after-hours trading.

Microsoft reported fiscal first-quarter earnings of $17.56 billion, or $2.35 per share, from $2.71 per share in the same quarter a year ago, when the tech giant disclosed a 44 percent per-share tax gain. Revenue rose to $50.1 billion from $45.32 billion a year ago. Analysts were expecting earnings of $2.31 per share on average sales of $49.66 billion, according to FactSet.

For the fiscal second quarter, Hood guided for revenue of $52.35 billion to $53.35 billion, according to FactSet, while analysts were expecting an average of $56.16 billion in sales. Hood said “intelligent cloud” revenue should reach $21.25 billion to $21.55 billion, while analysts estimate an average of $21.82 billion coming in print; Microsoft’s other revenue-segment forecasts even exceeded analysts’ average expectations.

Microsoft has suffered a strong dollar as well as a sharp decline in personal-computer sales, which peaked during the pandemic but are now showing record regression.

For more: The Pandemic PC boom is over, but its legacy will live on

According to FactSet, Microsoft reported PC revenue of $13.3 billion for the quarter, nearly flat from $13.31 billion a year ago and outpacing the average analyst estimate of $13.12 billion. While PCs have long been the Microsoft know-how to consumers, the company’s financial importance has declined in recent years as cloud computing has grown in importance.

“Historically, Windows was a huge driver of Microsoft revenue and, given its strong margins, a disproportionate driver of earnings,” Bernstein analysts wrote in a preview of the report, while maintaining an “overweight” rating. “Over time other businesses, notably Microsoft’s commercial cloud, have grown rapidly, while the Windows business has slowed significantly, reducing the relative impact of Windows.”

The “intelligent cloud” segment reported revenue of $20.3 billion in the first quarter, up from $16.96 billion a year ago, but slightly below the average analyst estimate tracked by FactSet of $20.46 billion. Azure’s 35% growth was the slowest Microsoft has recorded in the past two fiscal years; Microsoft only reports percentage growth for its Azure cloud-computing product, even as main rival Inc. Same as AMZN,
and Alphabet Inc. GOOGLE,
Report revenue and profit margins for their cloud-computing products.

Microsoft’s other revenue segment, “productivity and business processes,” reported revenue of $16.5 billion, up from $15.04 billion a year earlier and higher than the average analyst estimate of $16.13 billion, according to FactSet. That section includes Microsoft’s core cloud-software properties such as its Office suite of products — officially being renamed Microsoft 365 — as well as LinkedIn and a few other properties.

Microsoft stock is down 25.5% so far this year, as the S&P 500 index SPX,
down 20.3% and the Dow Jones Industrial Average DJIA,
– which Microsoft counts as one of its 30 constituents – declined 13.3%.

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