In more challenging times, Microsoft’s cloud business keeps earnings flowing

Microsoft’s cloud business Corp. (MSFT.O) released financial results on Tuesday that indicated some resilience in the face of a sluggish economy. The company’s cloud business, which met Wall Street targets for the end of 2022 but may fall short of forecasts for the current quarter, provided additional support.

Cloud revenue in the fiscal second quarter, which was published on Tuesday, made up for some loss in the PC section, allaying concerns that the lucrative cloud segment for big IT companies may be struck hard as consumers sought to cut spending.

According to Bob O’Donnell, principal analyst at TECHnalysis Research, “the minor miss on Microsoft’s cloud earnings prediction is probably just a reflection of the current economic reality that businesses are experiencing and not a foreshadowing of something worse.”

Following the news, Microsoft’s shares originally increased by 4% before turning downward in after-hours trade, falling 1% to $239.58. In the last year, the stock has dropped 18%.

This week, Microsoft made the announcement that it will be laying off close to 10,000 workers, joining other significant computer companies in using layoffs as a means of navigating difficult economic times. It announced fiscal second-quarter earnings that exceeded Wall Street forecasts.

Refinitiv estimated that its ‘intelligent cloud’ business’ third-quarter revenue would be between $21.7 billion and $22 billion, or slightly less than the $22.14 billion analyst average expectation. The $21.5 billion in revenue for that division in the second quarter was slightly over expectations.

The cloud business is back in the spotlight following the viral success of the chatbot ChatGPT, which uses artificial intelligence to give clear answers to frequent questions. The company OpenAI, in which Microsoft has made major investments, and which needs expensive cloud computing services, is the one who created the bot.

Regarding OpenAI, Brett Iversen, Microsoft’s head of investor relations, said, “There are a lot of ways that we may apply that technology either in unique offers or to improve existing offerings.” He predicted that future revenue for Microsoft’s cloud business service would come from ventures tied to OpenAI.

During the earnings call, Chief Executive Satya Nadella said that it was still too early to differentiate between AI’s contribution and the workloads in the Azure cloud.

Revenue from Azure cloud products increased 31% in the second quarter, in line with projections made by Visible Alpha. It has steadily surpassed industry leader Inc.’s (AMZN.O) Amazon Web Services in terms of market share (AWS).

BofA Global Research forecasts that Azure will raise its market share from 20% in 2018 to 30% by the end of 2022. Over the same time frame, AWS dropped from 71% to 55%.

According to Refinitiv IBES, Microsoft’s sales for the three months that ended on December 31 climbed by 2% to $52.7 billion, outpacing the average analyst estimate of $52.94 billion. Refinitiv calculations show that while the adjusted income of $2.32 per share exceeded Wall Street’s average forecast of $2.29, net income fell by 12% to $16.4 billion.

Microsoft’s More Personal Computing sector, which comprises Windows, devices, and searches income, had a 19% decline in sales to $14.2 billion as the PC market continued to shrink. The company projects that its third-quarter revenue would fall anywhere between $11.9 billion and $12.3 billion.

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