P R E M I U M
Wednesday, January 31

Microsoft is the King of Cloud



But conservative guidance has investors pumping the brakes


 

BREAKING NEWS

Microsoft is fairly flat in early trading despite a massive earnings beat last night. What’s going on at the world’s most valuable company? 

 

WHAT HAPPENED

Microsoft smashed expectations by generating an outlandish $21.9 billion in net income from $62 billion in revenue. Those revenue numbers are great—representing an 18% jump from last year. However, Microsoft’s profits skyrocketed 33% since last year—crushing expectations. 

 

Most of that rise came from another meteoric beat at Microsoft’s Azure business. Instead of just leaning on AI services—Microsoft is using all this AI sentiment to drive customers into bigger and bigger cloud deals. Azure revenue popped 20% YoY after some weaker growth in the first half of 2023. That pushed Azure’s operating income up 40% since the same period in 2022. 

 

CAUTIOUS OPTIMISM

However, Microsoft’s guidance for Q1 came in a little lower than The Street was hoping. With a growth curve like this—it makes sense to be cautious. Microsoft also expects profits to be higher as they keep cutting costs and driving efficiency—but the Cloud Emperor needs to be pushing more exponential growth to justify their current run-up.

 

WHY IT MATTERS

These results are a strong demonstration of how big tech firms are going to win on AI hype in 2024. While AI services haven’t demonstrated a concrete path to revenue yet, Microsoft is basically using AI interest as the world’s greatest marketing tool for their highest-grossing product. Microsoft is rapidly gaining on AWS as the premiere cloud provider in a moment when investors were genuinely expecting cloud budgets to crumble. However, Microsoft has already experienced a historic runup in the last quarter—so the stock stayed relatively flat in early trading.


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