Not So Soft

Image source: Microsoft, OpenAI

What's going on?

Microsoft reported better-than-expected quarterly results late on Tuesday.

What does this mean?

Microsoft’s cloud computing business is its growth backbone, but corporate customers have tightened their belts in recent quarters and slowed the segment’s growth. And although that slow-down didn’t reverse last quarter, the segment still flexed its muscles, beating analysts’ expectations with 18% revenue growth compared to the same time last year. There was good news for Microsoft’s productivity business too, which includes Microsoft 365 and LinkedIn, as revenue jumped a better-than-expected 7%. And even the bad news was predictable: the PC segment saw revenue decline by 19%, but experts were calling last quarter the worst for PCs since the 90s, so that’s hardly a surprise. So, sure, Microsoft’s overall revenue rose at the most sluggish pace since 2016, but the unexpectedly handsome profit still relieved investors, who initially sent shares up 5%.

Why should I care?

Zooming in: OpenAI, closed deal.
Newsflash: Microsoft’s $10 billion investment in ChatGPT-owner OpenAI has been confirmed. The move will give OpenAI’s wizards access to more powerful cloud computing resources, which should help the firm up its research game and run more advanced models for programs like ChatGPT and DALL-E. And Microsoft’s getting its back scratched too: the software heavyweight plans to add OpenAI’s tech to its corporate and consumer product offerings, a step that analysts think could help in its battle of wits with Amazon’s AWS cloud service.

For markets: Good tidings.
The S&P 500 has hit high gear this year, cruising through the past few weeks in the green – but whether or not it stays on course will be influenced by how the tech sector fares this earnings season. Information-tech makes up over a quarter of the entire index, after all, so the S&P 500 could continue its promising trajectory if next week’s results from the likes of Meta, Apple, and Amazon follow in Microsoft’s footsteps.

Originally posted as part of the Finimize daily email.

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