Microsoft beats Q2 estimates, stock falls

Yahoo Finance's Jared Blikre examines Microsoft's after-hours trading. Greg Swenson, Brigg Macadam Founding Partner, and John Kicklighter, DailyFX Chief Strategist, provide additional commentary on Microsoft's earnings during a volatile market.

Video transcript

EMILY MCCORMICK: All right, let's pause this conversation for a moment and head over to Yahoo Finance's Jared Blikre, standing by with earnings results from Microsoft. And Jared, that stock is trading lower. What are you seeing?

JARED BLIKRE: That's right, and I'm looking at all the key headline numbers and even some of the other ones. Lots of beats, so have to really dig into this report. You can see it's down about 5% in after-hours trading after being 2 and 1/2% down today.

So revenue for the second quarter, their second fiscal quarter, came in at $51.73 billion. That is up 20% year over year, and it is greater than the Street estimate of about $50.87 billion. Now, breaking that down by segment, we have productivity and business processes revenue. That came in at $15.94 billion-- very small beat over the estimate, also up 19% year over year. Intelligent Cloud-- that's a key one. That revenue coming in at $18.33 billion. 26% gain year over year, and the estimate was for-- well, we're going to call this in line, $18.32 billion.

And then a nice beat on personal computing-- $17 and 1/2 billion versus $16.67 billion. That's up 15%. Operating income, $22 and 1/4 billion, and that is greater than the $21.06 billion the Street was expecting. Capital expenditures-- looks like a small beat there, $5.87 billion. Estimate was for a little bit lower, $5.83 billion. And they also returned $10.9 billion to shareholders via repurchases and dividends in the second quarter.

Now, I want to go through a quote from Amy Hood that-- she's their executive vice president and chief financial officer. She's saying, "Solid commercial execution, represented by strong bookings growth driven by long-term Azure commitments, that increased Microsoft Cloud revenue to $22.1 billion, up 32% year over year."

And just to go over that headline number one more time, revenue of $51.73 billion. That is the first time they have topped $50 billion in any quarter in their history, so pretty impressive there. Not really seeing any negative news of note, but we will continue diving through this report. You can see it's still down about 3 and 1/2% there on your screen.

EMILY MCCORMICK: All right, Yahoo Finance's Jared Blikre, thank you so much.

John, I want to turn this question over to you. When you hear these results coming out from Microsoft-- And we see the stock reaction that we have now. That is off in late trading, similar to what we saw after Netflix's earnings results last week, even though, of course, that company did miss on subscriber numbers. I'm wondering, what do you think this signals to investors about where tech stocks may be going? Because again, at least on the headline numbers, pretty solid results here from Microsoft.

JOHN KICKLIGHTER: Yeah. In the past few years, particularly post-pandemic, there was just a-- such an appetite for the momentum plays of the big market caps. And I just feel that the markets are much more cognizant of the exposure that they've built up and moved away from more of the value play and more getting into the growth play, which made a lot of sense with the amount of capital and liquidity that was floating around the system. But now that you are seeing these forecasts-- and it's still a good number, of course-- but the forecasts that we're seeing from particularly tech and other-- and then the meme sector as well, is starting to really flag alongside growth forecasts generally from the likes of the IMF.

We have US GDP on Thursday. It's probably going to show a slowdown. People are just much more aware of where they're at in the market cycle, much more aware of their portfolio holdings, and see that we have pulled back 10% plus from these major indices. And they have to make a critical decision of whether I want to book some profit or just protect capital for a little bit of time, especially when I see some of these major events like a FOMC rate decision, just see how the market plays it out, then reinvest myself.

ADAM SHAPIRO: Greg, I don't want to put you on the spot specifically with Microsoft other than-- let me phrase it this way. So we saw that revenue growth with Azure year over year was up 40-- if I'm-- it's so small, and I'm so old now-- like, 46%. They're in a race with Amazon. Could investors possibly be not pleased despite that 46%, that that's not sufficient to help them catch up to, you know, Amazon's cloud?

GREG SWENSON: Yeah, it's tricky. I mean, remember, Amazon-- I mean, sorry, Microsoft had this decade of underperformance in terms of the stock value. So even though they just print money like Apple and like other-- some other big tech stocks, it's not a guarantee that you're going to make money on that investment or on that stock. So I think I would-- you know, like John said, I'd be cautious about tech. You can't fight the argument that, as rates go up, long-duration equities, which basically is tech, you know, are going to be a challenge.

So look, you're not going to get killed on Apple and Microsoft and other completely solid companies that continue to print money. But, you know, if you're looking for a upside, I would do it more in banks, energy. I know that trade worked well last year, and maybe it's-- it's a little crowded right now. But, you know, be careful with tech, you know. You can't-- Again, for a very long-term play, Microsoft and the like are great investments. But I think there's better places to put your money right now. And also, just be careful and, you know, hedge. Buy the VIX or, you know, have some puts in your portfolio.