Profits also surpassed expectations. Microsoft’s shares climbed following the announcement. There is logic to the positive reaction: The main drivers of the strong results are sustainable for the foreseeable future.
First, there is the return-to-office trend. As employees started heading back into physical offices, they will need to be outfitted with the latest software from Microsoft.
Even more important is the industry-wide transition toward cloud computing. Microsoft’s Azure unit, which rents computing power to startups and larger businesses, posted an impressive 50% growth for the quarter.
Azure is in a position to thrive for years to come. The opportunity is massive. According to Wedbush Securities, global cloud-services spending will approach US$1 trillion over the next decade as businesses spend more on cloud computing.
Microsoft is the No. 2 player, with about 20% of the market, according to Gartner. It grew at more than double the rate of market leader Amazon Inc’s Amazon Web Services last year.
Microsoft has a unique advantage. Unlike its cloud competitors, it sells traditional PC software and operating systems, and can provide better integration with its products.
Many medium-size companies prefer consolidating their purchases with one company to avoid the complexity of multiple vendors. That may be why a recent Morgan Stanley survey of chief information officers showed Microsoft would gain the biggest share of technology budgets over the next three years — above all other technology companies including Amazon.
Here’s another lucky circumstance. While many firms have had to deal with supply-chain complications, Microsoft’s main businesses — software and services that rely on data traveling over the internet — have been relatively unscathed.
Apple, in contrast, has to manufacture and ship iPhones across continents. Amazon’s e-commerce operation must stock merchandise to sell for the holidays.
Microsoft wasn’t the only technology behemoth to post robust results Tuesday. Google-parent Alphabet reported a nearly 70% jump in net profit in the latest quarter. It’s all the more evidence that even as regulators train their sights on the big tech companies, they continue to generate eye-opening profits.
What’s next for Microsoft? Ahead of the latest results, the company was valued at US$2.33 trillion — second to Apple’s US$2.47 trillion. The two companies have traded off the designation of most valuable company a number of times in recent years. It might not be long before Microsoft retakes the crown.
