Microsoft Foresees a Steady Cloud Growth After a Record Quarterly Profit

Microsoft Corp beats Wall Street expectations for revenue and earnings after it gained the highest profitable quarter on Tuesday due to the demand boost for cloud service. This increased cloud inclination is the result of declining PC sales because of a global chip shortage.

Share values registered a surge of 0.7% after Microsoft forecasted that its Azure cloud computing business would continue to progress, following a quarter in which sales soared 51%. The overall revenue increased 21% to meet $46.2 billion, surpassing analysts' prediction by about $2 billion, as per IBES data from Refinitiv.

The increased adoption of remote work enhanced consumer appetite for cloud-based computing. As a result, companies including Microsoft, Amazon.com Inc's (AMZN.O) cloud unit, and Alphabet Inc's (GOOGL.O) Google Cloud also shares profit.

Daniel Ives of Wedbush Securities says, “Microsoft's direction was strong, and it demonstrates the accelerating cloud development story." According to consensus data projected by analysts from Visible Alpha, Microsoft's "Intelligent Cloud" segment sees a rising revenue of 30% to $17.4 billion, with growth in Azure revenues handily exceeds the 43.1% hike.

Further, as per Refinitiv Eikon data based on the closing price for Monday, Microsoft's market capitalization positions at nearly $2.2 trillion, after rising approximately 30% this year, compared with 18% for the overall S&P 500 Index (.SPX). It has surpassed the price-to-earnings proportions of tech giants Apple Inc (AAPL.O) and Google, fuelling apprehensions about the overvalue among some analysts.

Haris Anwar, the senior analyst at Investing.com, says, "Microsoft's stock has made a considerable value since the beginning of the pandemic and is growing exponentially.” However, he continued, "After such a powerful contest, its shares may rest for a while, as investors are still unclear how the demand will change in the post-pandemic environment."

Revenue from personal computing, including Xbox gaming consoles and Windows software, increased 9% to meet $14.1 billion. However, Paolo Pescatore, an analyst at PP Foresight, says, “Xbox content and services revenue saw a decline, suggesting that a gaming demand fuelled by the pandemic is beginning to diminish. As a result, the company must work upon making its presence strong in the home to compete with rivals.”

As makers of cars to smartphones struggle with an unexpected chip shortage, Microsoft has not been insusceptible. Microsoft’s Chief Financial Officer, Amy Hood, says, “OEM revenue dipped 3%, and Surface declined 20%, where both were impacted by the supply roadblocks identified earlier in a decent demand environment."

According to the Daniel Ivel of Wedbush Securities, “The chip shortage can also be the reason behind Microsoft's dip in Xbox content and services revenue, as controlled hardware sales can result in a weaker performance in services.”

Microsoft forecasted strong development for professional social network LinkedIn, which helped during the quarter from robust advertising and a steady job market. As a result, it reported $2.17 earnings per share, above the consensus approximation of $1.92.