What Microsoft’s earnings mean for Big Tech

Yahoo Finance's Dan Howley breaks down what Microsoft earnings say about the tech giant's various businesses as well as what it signals for the tech sector in the months ahead.

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RACHELLE AKUFFO: All right, well, let's kick things off with Microsoft shares sliding into the red following its latest earnings report, as the tech giant leaves investors wary with its downbeat outlook, as it sees further growth slowdown in the cloud. Well, what could this all signal for the rest of the mega tech names? Here with the details is Yahoo Finance's Dan Howley. Hey, Dan.

DAN HOWLEY: Hey, Rachelle. We had Microsoft report slowing cloud sales in the quarter. And it was not as bad as seemingly analysts had expected. But the bigger problem was the Q3 guidance that Microsoft had issued, basically saying that, look, we're going to continue to see deceleration in this cloud area as a result of the broader macroeconomic conditions. And so this has been something that's been going on for quite some time. It's not necessarily just this quarter. So it's surprising to see analysts react when they said that they saw better than expected results from the cloud business.

The acceleration that we saw from sales during the pandemic was astronomical for sure, but we've seen them come down quite quickly as a result of that kind of pullback. And so now moving forward, we're expecting to see further deceleration.

I think the other thing to point out for sure is the PC market. That really kind of stung Microsoft hard. They were down 39% for their Windows OEM business. That's where they basically sell Windows licenses to PC manufacturers. And as a result of that slowdown in the market, we're seeing this pullback in the number of people that are going out and buying PCs. And that also applies to their own Windows hardware business, where we also saw a slowdown as well.

So, overall, this doesn't paint a great picture for other cloud service providers or PC manufacturers. We have Intel reporting tomorrow as far as the chip side of things. So we'll get a better look at what that means for hardware. But for the cloud, it could spell trouble for the likes of Amazon and AWS and Google and their Google Cloud platform.

RACHELLE AKUFFO: And obviously, Dan, a lot of people turned to these tech companies when they didn't have a choice during lockdown. So we knew there was going to be sort of an untangling of this as consumer demand changes. You have to wonder, though, is Microsoft any better or worse positioned than some of these other big tech companies?

DAN HOWLEY: It's interesting because they are the second largest by volume cloud provider on Earth, just behind Amazon. Google is in third, followed by a slew of others. But as far as how they've managed to package and offer their kind of cloud products, they've done a great job. And so once we start to see perhaps a kind of push forward as far as companies going out and starting to rebuy some of the cloud offerings, then that could really start to improve for Microsoft.

They purchased, obviously-- or didn't purchase, but invested that $10 billion in ChatGPT creator OpenAI. That should spell good news for them down the line, especially since it's not just ChatGPT. That's just a chat bot. It's the technology behind that. I know a lot of people have discussed ChatGPT being kind of the big, interesting product that's available. But it's the technology behind that that provides that natural language conversational that you'll have with the AI.

And so that's something that, I think, obviously, helps Microsoft differentiate itself, especially since Microsoft is going to be the exclusive cloud provider for OpenAI and what it has to offer. And at this point, they're doing all of these calculations and activity in the cloud through OpenAI. So that really does give Microsoft a boon.