Microsoft’s future may be the cloud, but boring business tools are paying the bills

Cloud is up, up, up.
Cloud is up, up, up.
Image: AP Photo/Eric Risberg
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The cloud might be Microsoft’s future, but right now the office is its savior.

Microsoft’s stock dropped nearly 3%, before rebounding, even as it beat Wall Street estimates and announced strong cloud revenue growth for its fiscal second quarter. The company reported $28.9 billion in revenue, a 12% year-over-year increase. However, Microsoft did post a loss of $6.3 billion for the quarter due to a one-time tax charge of $13.8 billion stemming from changes to the US tax system.

In the most recently completed quarter, Microsoft’s business products and services segment, which now includes LinkedIn, was the star, with revenue growing 25% year-over-year. This could be partially attributed to Microsoft switching to a subscription model for software like Office 365, which now has 29.2 million subscribers locked in.

While the company’s biggest moneymaker, personal computing, grew 2% to $12.2 billion in revenue, its cloud business is quickly catching up, reporting $7.8 billion in revenue, representing 15% year-over-year growth.

Analysts had been expecting a strong quarter for Microsoft’s cloud business. Earlier this month, a KeyBanc analysis concluded its Azure cloud services had grabbed back market share from its biggest competitor, Amazon, though it still trails by 42 percentage points in the no. 2 spot.

KeyBanc found artificial intelligence cloud products, like easy-to-access image recognition and natural language processing for developers, as a distinguishing factor for Microsoft, noting that the company had more offerings than competitors.

That speaks to the “AI-first” drum that CEO Satya Nadella has been beating when talking about the company’s future.

“AI isn’t just another piece of technology,” Nadella said last year, in response to Elon Musk’s fear of killer AI. “It could be one of the world’s most fundamental pieces of technology the human race has ever created.”