Microsoft Corp. reported incredibly strong holiday-season earnings Tuesday afternoon, topping $50 billion in quarterly sales for the first time and beating expectations across the board.
Yet the stock immediately fell more than 5% in after-hours trading, and stayed low for roughly two hours. As soon as Microsoft executives told investors that they expect to reach record cloud revenue and challenge that $50 billion level again in the current quarter, the shares moved reversed course, and ended the extended session up more than 1%.
As investors toughen out the current market volatility, it’s becoming clear the only thing that is going to matter this earnings season is tech companies’ forecasts. Investors know they likely put up record profits and revenue in 2021 as the COVID-19 pandemic continued to push us all online, but they need to know what is expected ahead in tech, where many stocks have been overheated and overvalued.
And they are willing to send stocks on wild lurches both ways as they figure it out.
“In this jittery market, we will see every tech print initially viewed as glass half-empty,” Wedbush Securities analyst Dan Ives said in a note to clients.
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There is a big flight to quality in the market, as fund managers have been noting in recent weeks, and investors appear to have no tolerance for even small disappointments. The only blemish on Microsoft’s ledger, for example, may have been that Azure’s cloud-services business grew at a 46% rate, which beat the consensus but did not meet the “whispered” growth rate on the Street of 48%, according to Ives.
That was enough to punish Microsoft, at least until Chief Financial Officer Amy Hood said that cloud growth would grow from that 46% number, and predicted record cloud revenue in the first calendar quarter. She sees growth in all Microsoft’s businesses except for on-premises software, including the cooling personal-computer industry, particularly on the commercial side.
Microsoft survived the earnings gauntlet, thanks to that forecast, but many other companies will see a similar a see-saw effect after earnings this quarter — if they are lucky enough to experience the highs. To misquote Bette Davis in “All About Eve”: “Fasten your seat belts, it’s going to be a bumpy quarter.”