What's going on?
Microsoft’s stock price jumped 5% to an all time high late on Thursday after the software giant reported financial results that were significantly better than expected – and it’s mainly thanks to the cloud.
What does this mean?
Over the past few years, Microsoft has shaken off its image as a stale software producer (think: Windows and Office), and transformed itself into a leader of what it calls the “intelligent cloud.” This business goes beyond simple cloud-based storage to support things like secure transactions and other, more technical services (e.g. predictive analytics driven by machine learning). Revenue in this division more than doubled versus a year ago and, unlike basic cloud storage, the more dynamic businesses are maintaining high margins (which means, in short, it’s a growing and very profitable business).
Why should I care?
For the stock: Microsoft’s stock is soaring – and its new-ish CEO is getting much of the credit. (tweet this)
When Microsoft’s stock price hit its previous all-time high, its investors partied like it was 1999 (because it was 1999!). Perhaps the main reason that Microsoft has been able to (finally) drive its stock to a new high is a sea change in the attitude of its senior management (its CEO Satya Nadella was appointed in 2014). He has successfully refocused the company on products of the future, and re-cast Microsoft as a growing enterprise.
The bigger picture: Earnings season is starting to look rosier.
Microsoft has set a very positive tone for software-based tech firms (Alphabet, Facebook and others will report soon), while all the major banks managed to perform better than expected. We’ll know more about the “industrials” when General Electric reports its numbers to investors on Friday. But so far, almost a quarter of the way through “US earnings season,” the picture isn’t as bleak as some had feared.