Microsoft’s share price gained over 4% in afterhours trading yesterday, adding to the 1.56% it added during the day’s session, as the software giant became the latest major tech company to surpass analyst expectations on revenue growth. The company’s commercial cloud computing arm, Azure, proved to be the engine for the forecast-beating Q2 rise in revenues, up 39% on the same period a year earlier.
Microsoft’s biggest revenue contributor is still its More Personal Computing unit, which includes Windows and the Microsoft Office suite. Revenue there grew by 1.6% to a total of $13.2 billion. But cloud computing revenue is catching up quickly and should surpass the Personal Computing core Microsoft’s business has been built on by the end of this year.
Cloud computing brought in $12.5 billion in quarter two, just $700 million behind Personal Computing. Even a spectacular drop-off in growth would see it become the largest revenue generator for Microsoft within the next several months. But growth is expected to remain strong for several years to come as much of the world’s economy moves to a cloud computing infrastructure.
Across the sector, the compound annual growth rate is expected to average 18% over the five years between 2018 and 2023, reaching a global value of $623.3 billion.
As the second largest public cloud services provider by market share, behind only Amazon’s AWS, and growing faster than its larger competitor, Microsoft Azure will hope its growth with be ahead of the overall market’s.
Cloud adoption is being driven by a rise in computing power and storage requirements across the economy. A surge in the number of connected devices, known as the Internet of Things (IoT), is also a major driver. That trend will continue at pace, with the introduction of autonomous vehicles expected to bring an inflection point.
Another positive for Microsoft has been the growth of its hardware business, driven by the success of its Surface range of laptops. Revenues from the Surface unit grew 6% to $1.9 billon.
Overall, Microsoft reported profits of $11.6 billion during the second quarter of its fiscal 2020 calendar, up 38% from a year ago. Those figures were achieved on revenue of $36.9 billion, up 14% from the same period during the company’s fiscal 2019 calendar.
Microsoft chief executive Satya Nadella commented on the release of Microsoft’s strong Q2 results:
“We are working to ensure the technology we build is inclusive, trusted and creates a more sustainable world.”