What happened
Shares of Microsoft (NASDAQ: MSFT) fell 7.7% on Wednesday after the tech giant told investors to brace for a steep downturn in the personal computer (PC) market and a decelerating pace of expansion in the cloud.
So what
Microsoft's revenue grew by 11% year over year to $50.1 billion in its fiscal 2023 first quarter, which ended on Sept. 30. Excluding foreign exchange fluctuations, the software maker's sales rose by 16%. The gains were fueled by a 20% rise in sales in Microsoft's Intelligent Cloud segment, to $20.3 billion.
Yet the company's most powerful growth driver -- its Azure cloud computing platform -- saw its revenue growth slow to 35%, from 40% in the prior quarter and 50% in the year-ago period. That was also below Wall Street's estimates, which had called for Azure's revenue to increase by more than 36%.
Moreover, during a conference call with analysts, chief financial officer Amy Hood said that higher energy costs were denting Azure's profit margins. The company is facing higher electricity prices in many of the markets it operates within.
Now what
Microsoft's tepid outlook gave investors more reasons for concern. Hood warned that declining demand for PCs would result in lower Windows-related revenue and sales of Surface devices. She also expects a slowing economy to force marketers to rein in their spending on the company's LinkedIn and Search advertising platforms.
Considering these challenges, CEO Satya Nadella said Microsoft would strive to become more efficient as it assists businesses with their cost-cutting imperatives.
"In this environment, we're focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way," Nadella said.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
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