Microsoft’s bleak outlook raises alarm bells for tech sector

Jan 25 (Reuters) – Microsoft Corp’s (MSFT.O) lackluster quarterly outlook portends further gloom for the tech sector, analysts said, after the tech leader warned customers that they were cautious about spending in a turbulent economy.

Microsoft, the second most valuable U.S. company, issued a cautious note in its quarterly earnings report as a sharp drop in customer spending sparked a series of high-profile layoffs across the tech industry.

Company CEO Satya Nadella and other Microsoft executives used the words “cautious” and “cautious” at least six times during Tuesday’s hour-long call.

“Microsoft is the single biggest indicator of enterprise and cloud spending globally. Nadella’s comments about the cloud slowdown come as no surprise…It confirms that a darker macro is on the horizon,” said Dan Ives, analyst at Wedbush.

“That’s going to be a trend we see in the tech space, with management teams being conservative given the uncertain environment,” Ives added.

Nadella, however, said Microsoft would focus on AI technology, calling it the next big wave in computing.

The tech giant has invested billions of dollars in OpenAI, deepening its ties with the startup behind chatbot sensation ChatGPT and building on a bet it made on AI four years ago. years.

Analysts said Microsoft’s sharp slowdown in revenue growth was a “warning sign” for the tech sector, with more weakness in its PC division than in the cloud business.

“What we’ve learned is that no one is immune to the macro…what’s telling is that the quarter went well, but we started to see some softness in December and the outlook for this quarter was worse than expected,” said analyst Rishi Jaluria. at RBC.

Microsoft expects third-quarter revenue in its so-called smart cloud business to be slightly below analysts’ estimates, with a growth rate of up to 19%. It did, however, report better-than-expected second-quarter earnings for that segment, which initially pushed stocks higher on Tuesday night.

Companies ranging from Inc (AMZN.O) to parent meta-platforms Facebook (META.O) are already bracing for tougher months by cutting tens of thousands of jobs to keep their cash reserves high. a high level.

Analysts expect the cash to be used for other investments, which could include new buyouts, mergers and acquisitions or new technologies such as artificial intelligence.

Microsoft shares fell about 3% in premarket trading on Wednesday. Shares of cloud computing companies including Alphabet Inc’s Google (GOOGL.O),, Salesforce (CRM.N), Cisco (CSCO.O) and Workday Inc (WDAY.O) all fell.

Reporting by Nivedita Balu and Tiyashi Datta in Bengaluru; Editing by Krishna Chandra Eluri

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