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Microsoft’s earnings are better than feared, but they’re not without caveats

Microsoft (MSFT) stock jumped as much as 8% on Wednesday after reporting better-than-expected third-quarter results on Tuesday. The Windows maker beat Wall Street expectations across the board, from earnings and his earnings per share to cloud and productivity services earnings.

But Microsoft’s beats are not without caveats. The company did not beat analysts’ expectations. Rather, it’s best to assume that Microsoft’s performance is better than feared. The tech giant’s most important cloud business is still battling slowing overall growth.

Microsoft CEO Satya Nadella will be the keynote speaker at Build, the annual conference for software developers, in Seattle on Monday, May 6, 2019.  (AP Photo/Elaine Thompson)

Microsoft CEO Satya Nadella will be the keynote speaker at Build, the annual conference for software developers, in Seattle on Monday, May 6, 2019. (AP Photo/Elaine Thompson)

“The numbers are definitely [came] It’s a little stronger than people were worried,” Rishi Jaluria, an analyst at RBC Capital Markets, told Yahoo Finance Live. “Especially given all the headlines about the softening IT environment, the recession and, obviously, the banking crisis.”

Microsoft reported overall revenue of $52.9 billion for the quarter, compared to expectations of $51.1 billion. Its productivity and business process units brought in $17.5 billion, versus a forecast of $17.1 billion, and its intelligent cloud division, which includes Azure, brought in $22.1 billion, versus a forecast of $21.9 billion.

Microsoft’s More Personal Computing division reported revenue of $13.3 billion. This surpassed Wall Street’s estimate of his $12.3 billion.

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But it’s important to look beyond these first numbers. Take More Personal Computing as an example. Microsoft’s segment, which includes Windows software sales to third-party PC makers, saw Windows OEM sales drop 28%, down 9%.

Microsoft’s bread and butter cloud business continues to see impressive growth, with Azure and cloud services revenues up 27%, but down from 46% growth in Q3 2022. yeah. Over the past year, Q2 revenue growth was 31%.

“I think the investor I was talking to was prepared to miss the most important line, the Azure line,” Jaluria said.

But there are bright spots for Microsoft, despite slowing growth. It’s artificial intelligence. The company has been riding the AI ​​wave since it began rolling out his Bing chatbot and Edge browser earlier this year. Since then, he has started adding his OpenAI-powered technology to a variety of commercial products, from Dynamics 365 and its security services to Microsoft 365. This is a powerful advantage.

“Microsoft, when you look at the roadmap, it’s a scary roadmap,” Ted Mortonson, a technology strategist at Baird, told Yahoo Finance Live on Wednesday. “It’s kind of like the Death Star technology.”

However, it’s unclear when Microsoft’s AI efforts will begin to bear fruit. CEO Satya Nadella highlighted the potential impact of the technology on the company’s earnings call, but there’s no indication yet how much it will drive future revenue growth.

To Daniel Howley, technical editor at Yahoo Finance.keep up with him @Daniel Howley

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