Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
Global Head of Investment Strategy
If Wall Street is the Oscars, Microsoft has just walked away with Best Picture. Its recent earnings were a masterclass performance, dazzling analysts and investors alike. But behind the glamour of headline numbers lies a strategic clarity that's transforming Microsoft into an indispensable giant of AI and cloud computing. Let’s unpack these results and explore precisely what they mean for you as an investor.
Microsoft didn’t just beat expectations—it demolished them. Revenues climbed 13% to a record USD 70.1 billion, blowing past Wall Street’s forecasts by nearly USD 2 billion. Even more impressive, earnings per share surged to USD 3.46, a remarkable 8% above consensus.
Investors loved the news. Microsoft shares leaped by almost 6% after hours, sending a clear message: confidence in Microsoft’s future is booming.
The real magic behind these sparkling numbers? Cloud computing and artificial intelligence. Azure, Microsoft’s crown jewel, grew an eye-popping 35%, defying gravity by accelerating its growth rate. Crucially, AI contributed half of this surge, demonstrating how quickly AI has become Microsoft’s biggest growth engine.
Satya Nadella, Microsoft's visionary CEO, made it crystal clear: “Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth.” In other words, AI and cloud aren't just buzzwords—they're the heartbeat of Microsoft's long-term strategy.
But amid the fanfare, something subtle and important is happening. After ten relentless quarters of heavy investments into data centres—what one analyst called "the largest infrastructure build-out humanity has ever seen"—Microsoft slightly eased off the accelerator. Capital spending moderated to USD 21.4 billion, signalling to investors that the company is entering a new, potentially more profitable phase.
Think of it as a savvy runner pacing themselves after a blistering early pace—still ambitious, but smarter, conserving strength for what's ahead. This hints that Microsoft now sees clear returns from its massive AI infrastructure spend, a bullish sign for profitability and cash flow down the road.
Microsoft isn't immune to the winds of economic change. Rising tariffs and global uncertainty present real risks—especially as these pressures could cause some businesses to cut back on expensive technology upgrades. However, Microsoft’s diversified portfolio, from Xbox to LinkedIn, continues to show impressive resilience, posting growth even in tougher economic climates.
Keep your eyes peeled for management guidance. If Microsoft signals that it can continue to weather tariff impacts effectively, investors can breathe easier.
As we look beyond today’s triumphs, Microsoft's story remains compelling. With heavy lifting in infrastructure largely complete, the company is transitioning to the more profitable, steady phase of AI: inference rather than heavy initial training. Reduced spending in partnerships, notably with OpenAI, further hints at tighter, more profitable management ahead.
This strategic pivot could set the stage for a powerful earnings re-acceleration as early as next year—exactly the kind of narrative investors crave.
Here’s exactly what you, as an investor, should keep on your radar:
Microsoft's earnings weren’t merely strong—they were a strategic masterstroke, reinforcing its leadership in AI and cloud computing at precisely the right moment. For investors, the message is clear: Microsoft is no longer just participating in tech’s biggest wave—it’s leading it.
As investors ponder these latest results, one metaphor rings true: Microsoft isn't just navigating the tech seas—it’s reshaping the oceans themselves. For those invested or considering investment, this is exactly the narrative you want to hear.