Microsoft Stock: Azure’s Sluggish Growth May Affect Q2 Earnings

Microsoft Stock

Microsoft Stock (NASDAQ:MSFT)

The steady but gradual expansion of Microsoft’s Azure cloud platform is likely to be the primary contributor to Microsoft’s (NASDAQ:MSFT) results for the fiscal year 2023, which are set to be released on January 24. Microsoft stock rose nearly 3% on Friday.

Microsoft anticipates sales from its Intelligent Cloud division, which includes Azure as a component, will rise between 22 and 24 percent to a range between 21.25 and 21.55 billion dollars during the company’s fiscal second quarter.

Microsoft warned that the company’s revenue growth from Azure, the cloud computing platform that has become one of the primary engines of its business, would slow by five percentage points in the fiscal second quarter. This was done while ignoring the effects of currency movements on the company’s financial results.

The Consensus Estimate for revenues from Intelligent Cloud is currently pegged at $21.4 billion, indicating a gain of 16.7% from the figure recorded in the same quarter a year ago.

Despite this, continued growth in Azure will drive top-line revenue growth. Demand for cloud infrastructure monitoring, web-based application performance management, and human capital management solutions is fueled by the rising migration of workloads to the cloud. This has largely driven the demand for the cloud service offered by Microsoft.

Microsoft’s cloud computing business section has been under close scrutiny after the company’s most recent quarter revealed that Azure’s growth had slowed to 35% from 50% a year earlier. As a result of large clients pausing their expenditure in response to the weakening economy, Microsoft expects its cloud computing business to see a slowdown during the company’s fiscal second quarter.

Growth could slow, but the longer-term rising trend will continue unabated. This is because businesses may emphasize digital transformation within their lower budgets to prepare for an eventual rebound.

The cloud computing platform Azure from Microsoft is present in more than 60 areas worldwide and is accessible in 140 countries. It is anticipated that Microsoft Azure’s growth has contributed to the expansion of its cloud business and enhanced the company’s position as a competitor to Amazon (NASDAQ:AMZN). Amazon’s Amazon Web Services (also known as AWS), and Alphabet Inc.’s (NASDAQ:GOOGL) Google Cloud.

The operational income for AWS was reported at $5.4 billion for the most recent quarter, representing a year-over-year increase of 10.6%. Amazon can keep its dominant position in the cloud computing space because of the expansion of its AWS offering, which is attracting more clients.

Google Cloud sales increased 37.6% year over year to $6.9 billion for Alphabet, contributing 9.9% to the company’s quarterly revenue total.

Microsoft Joins Other Tech Giants in Reducing Employment Opportunities

To better prepare itself for fiscal 2023 and contend with the current economic situation, Microsoft has been decreasing the rate at which it employs new employees for its Office, Windows, and Teams businesses.

It was reported in October that this company terminated the employment of fewer than one thousand workers across several of its divisions. The software giant’s staff of more than 200,000 people was affected by these reductions by less than one percent. 

As a result of the consequences of inflation, rising interest rates, and currency headwinds, a number of the most reputable IT companies, such as Unity Software (NYSE:U), have announced that they will be laying off employees. The company will cut off more than 200 employees, and then in June, there will be another wave of job layoffs involving 225 people.

It has been claimed that Microsoft is getting set to remove additional roles from its global staff, which comes as other technology titans continue to reduce their workforce to weather challenging economic conditions. It is anticipated that the company will carry out another round of widespread layoffs, which would eliminate 11,000 jobs or around 5% of the workforce. These developments are a cause for concern among Microsoft stock traders.

Featured Image: Pixabay @ ClearCutLtd 

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About the author: Stephanie Bedard-Chateauneuf has over four years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on consumer stocks, cannabis stocks, tech stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.