Microsoft cloud growth holds up better than expected

Growth in Microsoft’s cloud computing business slowed further in the latest quarter but still did better than the software company and many analysts had predicted, lifting its shares 4 per cent in after-market trading on Tuesday.

Microsoft earnings, the first from one of the big US tech companies this year, appeared to show that one of its leading drivers of growth was holding up better than expected in a slowing economy, and prompted a 3 per cent rally for cloud rival Amazon.

Microsoft said that, before the impact of currency swings, revenue from its Azure cloud services had risen 38 per cent in the three months to the end of the year. That was down from the 42 per cent of the preceding quarter, but still above the 37 per cent that had been expected. Including the effects of a stronger dollar, Azure revenue grew 31 per cent.

The cloud business has become the main support for Microsoft’s earnings as its traditional PC software suffers a steep cyclical downturn. Cloud growth slowed more than expected in the preceding quarter as customers sought to increase the efficiency of their cloud spending, prompting worries about a sharper deceleration.

The company was due to issue earnings guidance on a call with analysts later on Tuesday. In a prepared statement, chief executive Satya Nadella did not comment on the weakening demand that led the company last week to announce plans to cut 10,000 jobs.

Instead, he sounded an optimistic note about the “next major of computing . . . being born”, as Microsoft’s cloud becomes a platform for advanced artificial intelligence. A day earlier the company announced what it described as a “multibillion dollar” investment in OpenAI, the maker of the ChatGPT bot, a move that executives said would accelerate the injection of AI into all of its products and services.

A $1.2bn charge from the job cuts, along with sharply slowing growth in its PC software business, sent net income down to $16.4bn in the latest quarter, 12 per cent lower than the year before. Leaving aside the charge, net income fell 7 per cent to $17.4bn, or $2.32 a share, slightly above the $2.29 Wall Street had expected.

Revenue in the latest quarter, the second of Microsoft’s fiscal year, rose 2 per cent to $52.7bn, compared to forecasts of $53bn.