Microsoft stock climbs after hours on strong Q2 earnings

Yahoo Finance Live's Julie Hyman and Brian Sozzi break down Microsoft's second quarter earnings, its cloud services revenue growth, and the demand for PCs during the pandemic.

Video transcript

JULIE HYMAN: Well, much like perhaps growth is slowing globally but it's still growing pretty well Microsoft brings me to Microsoft and Azure which is where a lot of the focus is with the company's business. The shares are up 5% this morning. Azure of course its cloud services business growth last quarter 46% which sounds pretty good.

There was a little disappointment initially that it wasn't as much as the 48% reported the prior quarter, but then investors took heart when the company came out with forecasts for sales growth of 248 and 1/2 to 49.3 billion in the current quarter, which is ahead of where they had estimated. And you can see here also, of course, we had a beat in the prior quarter. Really we saw gains in sales across the board, not just in the cloud services business but also in Windows actually because of demand for PCs right now that has been hot during the pandemic, gaming revenue up 8% as well, and of course that's without the benefit of the Activision acquisition which is likely going to take a while to close in any case. So, Brian Sozzi, it seems like here it is interesting this sort of turnaround that you saw in the shares after the forecast came out but it seems like there's a relatively high degree of confidence here that Microsoft continues to have a relatively rapid growth rate.

BRIAN SOZZI: After those earnings hit the wires, Julie, the stock was trading down and you thought, wow, the world was ending. Microsoft-- the great Microsoft growth story is slowing down. The stock's going to go way down.

But there you have Microsoft and CEO Satya Nadella, you know, as you can imagine this is our-- as you can recall, I should say, this is our company of the year for last year. He went on the call and said, hey, our growth is strong. People are rebuilding offices in this work-from-home environment, our teams business is strong.

You had CFO Amy Hood hop on the call and say, look, we're looking for a sequential or quarter-over-quarter acceleration in Azure Cloud Services that quieted down any concerns that that has reached peak growth. And a couple notes I jotted down, Julie, here one is this quarter from Microsoft, which was strong cost across the board pretty strong guidance here from the company. Does it-- help really set a short term bottom in tech shares? Because immediately the way one should be thinking is while Salesforce-- that stock has been sold off very aggressively-- will they come out and put a good quarter?

You had Satya Nadella talk about a great PC Renaissance on the earnings call last night. Well, does that mean the is out of HP and Dell are going to look pretty strong? I would suggest that they will look pretty strong.

And then secondarily let's go back to that Netflix quarter, Julie, on Friday. Does Netflix now represent the outlier in tech where growth is slowing sharply and they're coming out here with the cautious outlooks? It's something to think about.

JULIE HYMAN: Yeah, I think you makes some good points there in terms of whether this represents at least a short-term bottom in this tech-selling cycle, particularly software selling. But I don't know that you can put Microsoft and Netflix in the same basket in any case, even though they're both large cap tech companies just because Netflix is so consumer facing and Microsoft's business is much more enterprise facing. That said, Netflix is bouncing along with other tech stocks here this morning. So--

BRIAN SOZZI: Of course.

JULIE HYMAN: --it does seem like that there is just like we were seeing a lot of wholesale selling we could be seeing a more broad-based rebound particularly in technology this morning.