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Microsoft's bleak prognosis raises concerns in the IT industry. Analysts believe Microsoft's bleak quarterly outlook bodes ill for the IT sector, after the company cautioned consumers to be careful about spending in an uncertain economy.
Microsoft, the second most valuable business in the United States, struck a cautious tone in its quarterly earnings report, citing a sharp drop in client spending, which has resulted in a slew of high-profile layoffs in the IT industry.
On the one-hour conversation on Tuesday, Microsoft CEO Satya Nadella and other executives used the terms "caution" and "cautious" at least six times.
"Microsoft is the world's largest predictor of corporate and cloud expenditure. Nadella's remarks on cloud slowing are not surprise... It confirms the presence of a darker macro on the horizon "Wedbush analyst Dan Ives remarked.
"We'll see this across the IT field, with management teams being careful given the uncertain climate," Ives noted.
Nadella, though, said Microsoft will focus on AI technology, calling it the next significant wave of computing.
The internet behemoth has made multibillion-dollar investments in OpenAI, strengthening links with the firm behind the chatbot phenomenon ChatGPT and expanding on an AI bet it made four years ago.
According to analysts, Microsoft's dramatic slowdown in sales growth is a "warning sign" for the computer sector, with greater difficulty in its PC division than in its cloud business.
"What we learnt is that no one is immune to macro... what is instructive is that the quarter was basically alright, but we began to notice softening in December and the prognosis for this quarter was worse than predicted," said RBC analyst Rishi Jaluria.
Microsoft predicted third-quarter revenue in its so-called intelligent cloud business to be somewhat lower than analysts' expectations, with a growth rate of up to 19%. However, it did post better-than-expected second-quarter sales for that business, which sent shares higher on Tuesday evening.
Companies ranging from Amazon.com to Facebook-parent Meta Platforms are already bracing for harsher times ahead by laying off tens of thousands of workers in order to maintain healthy cash reserves.
Analysts anticipate that the cash will be utilised for additional investments, such as new buybacks, mergers and acquisitions, or new technologies such as artificial intelligence.
On Wednesday morning, Microsoft's stock was down roughly 3% in pre-market trade. Alphabet's Google, Amazon.com, Salesforce, Cisco, and Workday all saw their stock prices fall.
