Have investors bet correctly on safety of Microsoft's cloud-focused business?
There are signals that cloud-services providers are cutting infrastructure spending, leaving many wondering if this is a response to rising stocks or weakening demand
San Francisco/Seattle, US — For the past few months, Microsoft's stock has performed better than its tech giant peers as investors bet its enterprise and cloud-focusing business offered a safe port amid weakening tech spending. Now it’s time to test that thesis.
Microsoft’s earnings after markets close come amid signals that cloud-services providers are cutting infrastructure spending, raising questions about whether the move is a response to rising inventories or weakening demand.
Commentary from chip makers Intel and Nvidia “raises the question of whether this is due to hyperscale vendors having sufficiently built out last year to sustain expected growth (which would be a good thing for Microsoft), or whether there could be unanticipated slowing in cloud demand”, Raymond James analyst Michael Turits wrote. Networking gear vendor Juniper Networks also reported weakness from cloud customers.
Microsoft carries added heft this earnings season after surpassing Apple and Amazon.com as the world’s most valuable company. The company has a market value of $795bn and outperformed most other large cap technology companies over the past four months as investors bet that spending by business customers will hold up better than consumers.
Wall Street is projecting revenue of $32.5bn in the second quarter, up 12% from the same period a year ago, according to the average of analyst estimates compiled by Bloomberg.
Bank of America Merrill Lynch expects Microsoft’s sales to exceed the estimate driven by strength in the company’s More Personal Computing segment, which includes gaming and advertising, and its cloud business.