Microsoft (MSFT) Q2 2023 Results: What to Expect

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EEnterprise software and cloud giant Microsoft ( MSFT ) will report its results for the second quarter of fiscal 2023 after the closing bell on Tuesday. Shares are down about 33% from their peak, and investors want to know now is the time to act.

While the market remains generally positive on Microsoft, the company’s recent layoff announcement acknowledged that the company’s revenue is slowing and that a recession may be imminent. Microsoft said on Wednesday it would cut its global workforce by 10,000 employees and take a $1.2 billion charge related to job cuts in the fiscal second quarter, cutting earnings to 12 cents a share.

“While we are eliminating positions in certain areas, it is important to note that we will continue to hire in key strategic areas,” CEO Satya Nadella said in a letter to employees. The software giant faces a nearly 30% decline in 2022 due to rising inflation, rising interest rates and slowing technology spending. However, the Azure cloud platform will continue to be the backbone of the company and its long-term business for the company’s rapid growth and Intelligent Cloud business. periodic income. Azure and cloud services revenue is growing more than 40% year-over-year, and profit margins are approaching 45%.

These growth trends are expected to continue through 2023. Accounting for the negative impact of technology spending, Microsoft has a strong balance sheet with approximately $100 billion in cash reserves and an additional $75 billion in free cash flow. annual operation. Was the action radical? This is a must see. But Tuesday will determine the company’s management’s confidence in its growth potential, and the company’s ability to weather margin headwinds will be key to the stock’s near-term performance.

The Redmond, Wash.-based tech giant is expected to earn $2.30 a share on revenue of $52.99 billion for the quarter ended in December. That compares with the year-ago quarter, when earnings were $2.48 per share on revenue of $51.73 billion. For the full year ending in June, earnings are expected to rise 3.9% to $9.59 per share, with annual revenue of $212.84 billion up 7.3% from a year earlier.

Microsoft’s bull case includes several levels. The company recently made a foray into artificial intelligence with ChatGPT by investing $10 billion in Open AI. Several experts are calling it the “iPhone moment.” The terms of the deal call for Microsoft to receive 75 percent of OpenAI’s revenue. This large share of profits protects the investment, and then Microsoft takes a 49% stake in OpenAI.

Why is Microsoft making this deal? Note that ChatGPT automatically generates text using well-written queries that are more advanced than typical chatbots seen on web pages. Advances in this area could allow Microsoft to ramp up its efforts in web search to better compete with Google ( GOOG , GOOGL ). Another good thing about Microsoft is the expected growth in the company’s main business segments.

In the first quarter, the Intelligent Cloud segment, which includes Microsoft Azure, accounted for 40% of total revenue. An equally impressive segment delivered an operating profit of 44.2%, which is impressive given the overall size of the business. With the global cloud computing market expected to reach $1.2 trillion in the next four years, Microsoft still has a lot of room for growth. As such, Microsoft remains the stock to own over the next 12-18 months, unless there is a significant drop in performance and runtime.

The views and opinions expressed herein are those of the author and are those of Nasdaq, Inc.

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