Microsoft tumbles as analysts raise debate about guidance
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Microsoft (NASDAQ:MSFT) shares fell more than 3% in premarket trading Wednesday after the software giant reported fiscal second-quarter results and issued conservative guidance that prompted debate from several Wall Street analysts about the company's cloud business outlook.
Wedbush Securities analyst Dan Ives noted that the demand for Azure, Microsoft's (MSFT) cloud computing services is softening, with guidance for growth in the low 30% range for the March quarter seen as "conservative." On the company's conference call, Microsoft (MSFT) management noted the slowdown seen in December has continued to worsen, leaving Ives to ponder Microsoft's (MSFT) near-term future.
"The question now in the Street's mind is what does this Azure [deceleration] path look like over the coming quarters in a very uncertain macro [environment]," Ives wrote in a note to clients. Ives added that Microsoft (MSFT) has helped "clear the decks for its 2023 and 2024 fiscal years and has laid the groundwork for "hittable [or] beatable numbers over the coming quarters" with Azure growth stabilizing in the 30% range.
Other cloud-related stocks also fell on back of the report, including Amazon (AMZN), Google (GOOG) (GOOGL) and Snowflake (SNOW).
Ives added that the PC business, or Microsoft's (MSFT) Personal Computing business, is a "well known disaster" at this point after revenue for the segment fell 19% from a year ago to $14.2B. 
Jefferies analyst Brent Thill, who has a buy rating on Microsoft (MSFT) shares, noted the guidance implies the situation will get worse. Thill said that expectations of another 4 to 5 point "deceleration" in growth at constant currency rates, as the company gave a fiscal third-quarter revenue forecast of $50.5B to $51.5B. Wall Street analysts has earlier estimated Microsoft (MSFT) to post revenue of $52.42B for its third quarter.
BMO Capital Markets analyst Keith Bachman downgraded Microsoft (MSFT) to market perform from outperform following the report, citing the uncertainty around Azure.
"Until Azure growth stabilizes, we envision the stock being range bound," Bachman wrote in a note to clients. 
Delving deeper, Bachman noted that Azure accounts for roughly 31% of fiscal 2024 revenue estimates and with Azure growth slowing rapidly, annual growth could slow by two and three points each quarter through 2023. Bachman had previously thought the decline would start to level out in the second half of this year.
Bachman also said Microsoft's (MSFT) current valuation is not "overly compelling," based off the stock trading at 26 times fiscal 2024 earnings per share estimates.
Barclays analyst Raimo Lenschow, who has an overweight rating on Microsoft (MSFT), said the quarterly results were better than feared, but issues around the guidance for Azure revenue to post third-quarter year-over-year growth of 30% to 31% is concerning. 
Lenschow added that while Microsoft (MSFT) is protecting operating profit via its recently announced layoffs so profit and loss statement should remain "relatively stable," but there is likely more pain ahead for the software industry ahead.
On Monday, Microsoft (MSFT) confirmed it had made a "multiyear, multibillion dollar" investment in ChatGPT developer OpenAI.