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Technology Stocks : Cloud, edge and decentralized computing

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From: Sam1/29/2019 3:32:32 PM
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Microsoft earnings: How to look for a clue about a cloud downturn
By Jeremy C. Owens
Published: Jan 29, 2019 3:25 p.m. ET

If companies are spending less on cloud data centers, it should show up in Microsoft’s capital expenditures

The biggest drama in tech earnings so far this season is the possibility that the cloud boom is going bust, especially after Intel Corp. revealed disappointing data center sales last week.

For Microsoft Corp. MSFT, -2.06% , though, the downturn that is expected would likely cause little effect. Providers of cloud-computing power have shown no effects yet, as any downturn would be in its early stages and only affecting equipment providers far down the food chain. When Microsoft reports fiscal second-quarter earnings Wednesday afternoon, though, there could be at least one data point to test the theory.

For more: Intel’s cloud boom is no longer making it rain, and that’s a problem

Raymond James analysts pointed out last week that capital expenditure plans from Microsoft are typically “highly correlated” with Intel’s INTC, -0.48% outlook. For that reason, analysts at that bank expect Microsoft’s capex spending to be flat this calendar year, while consensus estimates call for an increase of 23% in this fiscal year and 10% in the 2020 fiscal year.

If the trend holds and Microsoft does pull back on its spending, it could back up Intel’s commentary that the entire data-center equipment market is slowing down. However, if Microsoft says that it expects to increase spending still, it could signal that the company is moving away from its “Wintel” partner in the cloud and looking at other chip vendors, which would just be an Intel problem and throw a small wrench in the talk of a cloud bust.

Either way, analysts appear confident that Microsoft is a safe bet at the moment because of its booming Azure cloud-computing business, a big reason why the company ended Monday with the largest valuation of any U.S. public company at more than $800 billion.

What to expect

continues at marketwatch.com
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