Select Page

It is perhaps too early to draw meaningful conclusions, but Microsoft’s failure to jump on better than expected earnings sure seems like more evidence that this is a market priced to perfection.

After the close today, January 30, Microsoft reported fiscal second quarter earnings of $2.93 a share (adjusted) versus analyst projections of $2.78 a share on revenue of $62 billion versus projections of $61.1 billion.

Cloud revenue, a key recent driver of the stock’s valuation, came to $33.7 billion, beating estimates of $32.2 billion. The company’s Intelligent Cloud business, which includes Azure, reported revenue of $25.8 billion versus analyst projections of $25.3 billion.

Shares of Microsoft were down 1.21% as of 5 p.m. New York time in after-hours trading.

The lack of any gains on the earnings beat is probably a result of disappointment that Azure cloud-services sales were up only 30%. That was better than the 29% growth in the prior quarter and exceeded the 28% growth projected by analysts. But it is still slower growth than the heady 50% rate that Azure saw when it was newer and a much smaller business. I think this quote from Dan Morgan at Synovus Trust sums it the problem for the stock of a company with a $3 trillion market cap. “On the software side, everyone is trying to play catch up to Microsoft,” Morgan, a senior portfolio manager at Synovus, told Bloomberg. “The cloud-data center is the hottest space for AI and the only spot we can see a real uptick in terms of AI. But it’s not enough to offset secular trends-—we’re not back up to 50% to 60% growth in Azure.”

I’d say a market that’s disappointed with 30% growth is indeed priced to perfection.