Amazon Stock Drops. Microsoft’s Outlook Hits Cloud Stocks.

Text size Microsoft stock falls as investors digested the company’s outlook. It doesn’t bode well for others in cloud computing. Jeenah Moon/Getty Images Microsoft’s outlook was so worrisome that it’s knocking down the stocks of other cloud companies, including Amazon.com. While Microsoft’s latest quarterly results revealed strength in its cloud computing business, a gloomy outlook was getting the spotlight Wednesday and weighing on stocks across the sector. After such a brutal stretch for tech and with the Nasdaq still in a bear market, who can blame investors for being a bit pessimistic? Shares in Microsoft (ticker: MSFT) fell 3.9%. Investors initially smiled on better-than-expected December quarter results from the tech giant late Tuesday, led by the Azure cloud business, but muted guidance from the company erased after-hours gains and sent the stock falling into Wednesday. But Microsoft stock wasn’t the only decliner. Amazon (ticker: AMZN), whose Amazon Web Services (AWS) is similar to Microsoft’s Azure, shed 4.8%. There was more red across the cloud computing space, with shares in Salesforce (CRM) dropping 3.2%, Palo Alto Networks (PANW) slipping 2.3%, and Snowflake tumbling 7.2%. The tech-heavy Nasdaq index was down 2%. Genuine strength in the cloud in the final three months of the year at Microsoft just wasn’t enough to dominate the narrative. Revenue in Intelligent Cloud, which includes Azure, came in at $21.5 billion, toward the upper end of the company’s own guidance, with Azure sales surging 38% on an annual, constant-currency basis. But the period ahead looks darker: Microsoft sees Intelligent Cloud sales growth slowing to 17% to 19% in constant currencies in the March quarter to $21.7 billion to $22 billion—which is shy of Wall Street’s consensus of $22.2 billion. The read-across to Amazon and others is straight forward: Don’t get too excited about what may be upbeat fourth-quarter results. If Microsoft expects a gloomier start to 2023, then others are likely to follow. Wall Street analysts already can see it. A team led by Lloyd Walmsley at UBS trimmed its target price on Amazon stock to $118 from $121 after Microsoft’s earnings, citing worries about Azure’s growth outlook and UBS sees as “a weaker overall enterprise IT spend environment.” The analysts cut their estimates for revenue and operating income in Amazon’s AWS business not only into the first quarter of 2023 but through the second half of this year, “following a disappointing Azure growth outlook calling for a sharp deceleration.” Recession fears are gripping Wall Street and company outlooks that imply anything close to an economic slowdown are quickly grabbing the spotlight this earnings season. The fourth quarter may have been strong across the cloud computing landscape, as Microsoft earnings suggested, but the stock market is forward looking—and it doesn’t like what it sees. Write to Jack Denton at jack.denton@barrons.com

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