Microsoft shares jump on strong guidance, surging cloud business

• Microsoft has seen strong growth in its cloud services business

• The company expects to earn between $48.5 billion and $49.3 billion in Q3

Shares of Microsoft Corp (NASDAQ: MSFT) jumped almost 7% on Wednesday, a day after the tech giant provided strong guidance for the next quarter in its second-quarter earnings report.

At the earnings call with analysts, Amy Hood, Microsoft’s chief financial officer, said the company expects to earn between $48.5 billion and $49.3 billion in the fiscal third quarter, topping the Wall Street analysts’ revenue estimate of $48.23 billion, with full-year operating margins to widen slightly, indicating that demand remains strong across much of the business.

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For the quarter ended December 31, 2021, Microsoft has seen continued strong advancements in Azure, its cloud services business, which reported revenue growth of 46%, although the company did not disclose the revenue in dollars.

“MSFT posted another strong quarter, and while the sequential deceleration in Azure growth created initial noise in the print, these concerns were quickly allayed with management’s guide of a Q/Q acceleration in Azure CC growth,” Stifel analysts wrote in a note on Wednesday.

“After the 14% YTD sell-off that appears overdone, we recommend growth investors buy MSFT on favorable risk-reward,” Piper Sandler analysts wrote.

Earnings

Microsoft topped analyst estimates on its second-quarter 2022 earnings and revenue on Tuesday.

The Redmond-based tech giant reported revenue of $51.73 billion, which jumped by about 20% from a year earlier and almost 22% compared to the previous quarter.

The net income increased by 21% to $18.77 billion and reported adjusted earnings per share of $2.48.

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Revenue from the Personal Computing segment, which includes Windows, advertising, devices, and gaming, surged 15.5% to $17.47 billion, as Windows licenses sales jumped by 25% in the period.

Microsoft’s gaming business segment, Xbox, represented almost 11% of total revenue and was more relevant to investors this month as the company announced plans to acquire game developer Activision Blizzard Inc (NASDAQ: ATVI) for $68.7 billion, the largest deal in the company’s history.

Picture Credit: FT