After dramatic Nasdaq blood-letting overnight, the reassuring statement from Microsoft Corporation (NASDAQ:MSFT) on continued demand for cloud computing services, "will be heard around the world" and calm Wall Street nerves, according to one impressed analyst.
Revenue for the tech titan's third quarter was reported at US$49.4bn, up 21% on a year ago, with sales from the Intelligent Cloud arm jumping 26% to US$19.1bn.
Driven by strong growth in its Azure cloud platform, chairman and chief executive Satya Nadella and his time gave guidance for US$21.1-21.35bn of cloud revenue for the fourth quarter, above Wall Street expectations.
After the Nasdaq composite index plunged almost 4% overnight, its steepest one-day drop since 2020, taking losses for the month above 12% and for the year to date over 21%.
“There are some moments in the financial markets that are pivotal and historical when put in context,” said analyst Dan Ives at broker Wedbush, citing JPMorgan boss Jamie Dimon's conference calls and 'hand holding' in the financial crisis.
“Last night was one of them when in a white knuckle market with the whole Street (regardless of what sector you cover, value/growth, where you live in the world) watching Microsoft's earnings with a close eye, Nadella & Co gave a robust cloud guidance 'for the ages' that will calm Street nerves this morning.”
Not only was this bullish for the company but also “the whole tech sector moving forward”, Ives said, with Microsoft reiterating its confident stance from a quarter ago.
But the optimism is not universal.
We are seeing the end of the universal strength of Big Tech that has driven market gains - especially in the US - in recent years, according to a note from Wolfe Research, with the tech bubble “likely to burst when fundamentals start to meaningfully deteriorate as the overall economy slows”.
Ives acknowledged that along with Microsoft, other enterprise, cloud and cybersecurity names are seeing massive growth that is not slowing despite the shaky macro situation.
“Despite the fear in the air given the Fed tightening backdrop and valuations falling off a cliff in tech, underlying digital transformation growth is accelerating and not decelerating into the rest of 2022 as part of this 4th Industrial Revolution," he said.
“Microsoft's cloud guidance was stronger than the Street and when factoring in F/X headwinds we would characterize this as a blowout guide in terms of how investors will digest these numbers this morning.
“The Fed raising rates and inflation issues will slow down the economy, but we view cloud spending as deflationary and ultimately on an accelerated path with Redmond leading the way."