After a brief scare, Microsoft assured tech investors that the enterprise internet cloud business category has plenty of room to grow.
Shares of software and services giant fell by as much as 6 per cent on Tuesday after it reported less than stellar growth in its cloud business. On Wednesday, they rebounded on Microsoft's forecast for cloud growth in the current quarter. Shares climbed more than 5 per cent to US $303.14, adding a boost to Wall Street's main indexes.
The revenue for Microsoft's Intelligent Cloud unit is expected to be US $18.75 billion to US $19 billion in the third quarter, compared to Wall Street consensus of $18.15 billion, according to Refinitiv data.
David Wagner, portfolio manager at Aptus Capital Advisors said we believe that this can change the sentiment in tech. He said Microsoft's guidance was solid and robust and that it's going to help Wall Street concerns on tech earning power.
Tech investors' fears that growth in the cloud business, among the strongest in tech industry segments, was decelerating, as the numbers for the quarter ended in December.
Microsoft's forward-looking confidence helped fight back a backlash against tech shares that has resulted in stock price gyrations, as well as its revenue for the second quarter beating estimates.
According to Jefferies analyst Brent Thill, cloud acceleration and commercial bookings highlighted by Microsoft Chief Financial Officer Amy Hood all helped save the Nasdaq. The upcoming financial reports from Microsoft rivals Amazon.com and Alphabet's Google will be a reflection of accelerating currency growth for Azure- Microsoft's flagship cloud offering, coupled with strong demand.
"I think investors should feel confident, and you saw that in the rebound in the stock after management commentary and then guidance," said Mark Moerdler of Bernstein.
Moerdler said that the projected growth of Azure validates the strength of the business and the sustainability of all cloud growth.