Stocks

Why Microsoft's Good Earnings Were Bad News for Ciena Stock and Arista Networks

Microsoft reported a profit of $1.38 a share on sales of $33.1 billion, both better than expected. But Microsoft also spent less than predicted, which could be bad news for cloud companies like Arista Networks and Ciena.

Microsoft reported a profit of $1.38 a share on sales of $33.1 billion, both better than expected. But Microsoft also spent less than predicted, which could be bad news for cloud companies like Arista Networks and Ciena.

We’d like to think that when a stock is up almost 2% after reporting earnings, like Microsoft is, that the numbers were unequivocally good. In this case, maybe not.

It wasn’t that there was anything funny buried in Microsoft’s numbers. It reported a profit of $1.38 a share on sales of $33.1 billion, both better than expected. But Microsoft (MSFT) also spent less than predicted, which could be bad news for cloud companies like Arista Networks (ANET) and Ciena (CIEN).

At least that’s the case made by Evercore’s Amit Daryanani. Of course, the biggest problem for those companies, as well as CommScope Holding (COMM) might be Nokia’s disastrous quarter and full year guidance (it also eliminated its dividend). But Microsoft’s lighter capital spending is also feeding the worry, Daryanani writes. “Networking names selling off today with ANET, COMM, & CIEN down 3%+ on the back of disappointing NOK print (not covered) and modestly lower capex from MSFT,” he explained. “MSFT attributed the lower than expected capex to normal quarterly variability, but the lower headline number should contribute to the bearish narrative for cloud leaders ANET & CIEN.”

Daryanani, however, doesn’t think it’s time to panic. “MSFT cloud revenue growth remains robust and we do not think investors should read too much into q/q fluctuations in capex,” he writes.

Microsoft stock has risen 2% to $140.01, while Arista Networks has fallen 3% to $239.15, Ciena has declined $36.80, and CommScope Holding has dropped 5.7% to $12.30.

Write to Ben Levisohn at Ben.Levisohn@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Latest Stocks Videos

Are Investors Too Optimistic?

Aug 10, 2022

Barron's

Barron's is a leading source of financial news, providing in-depth analysis and commentary on stocks, investments and how markets are moving across the world.

Learn More