Microsoft’s set outlook raises red flags for the tech sector

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Microsoft's set outlook raises red flags for the tech sector

Reuters, 25 January – Following Microsoft Corp’s (MSFT.O) warning that its customers were wary about spending in a tumultuous economy, economists said the tech sector may expect more doom in the coming quarters.

Microsoft, the second-most valuable firm in the United States, issued the warning after internet giants including Inc (AMZN.O) and Meta Platforms (META.O) cut staff to save money due to a sharp decline in consumer spending.

Amazon, Apple, and Microsoft all recovered some of their earlier-day losses to trade roughly 1% lower on Wednesday. Google Inc. (GOOGL.O) fell by 3%. According to market valuation, the four enterprises are among the biggest in the country.

Oracle Corp. (ORCL.N) and IBM Corp. (IBM.N) are two cloud computing companies whose shares all fell. Later in the day, IBM is slated to release its fourth-quarter quarterly earnings.

During the one-hour discussion on Tuesday, Microsoft CEO Satya Nadella and other business executives used the terms “caution” and “cautious” at least six times.

According to Hargreaves Lansdown analyst Sophie Lund-Yates, “the rate of Microsoft’s revenue downturn should be considered as a danger indicator for the larger tech sector.”

Analysts anticipate that other tech bosses will present a cautious view after Nadella.

The quarter was all right, but we started to see a slowdown in December and the projection for this quarter was worse than predicted, said Rishi Jaluria, an analyst at RBC. “What we learned is that no one is immune to macro,” he said.

Microsoft projected third-quarter revenue in its so-called intelligent cloud business would climb by up to 19%, slightly below market expectations. But in the second quarter, the division surpassed forecasts, which initially boosted shares on Tuesday night.

Art Hogan, the chief market strategist at B Riley Wealth, said that the forecast was “taking the wind out of the sails.”

However, Nadella declared that Microsoft would concentrate on AI technology, referring to it as the coming “big computing wave.”

The IT giant extended its relationship with the startup that created the ChatGPT chatbot phenomenon by investing billions of dollars in OpenAI, building on a bet it made on AI four years earlier.

Analysts anticipate the money to be utilized for other investments, such as new buybacks, mergers, and acquisitions, or new technologies such as artificial intelligence, as many tech businesses are currently focusing on increasing their cash reserves.

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