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Microsoft’s Cloud Results Just Blew Its Stock Price Through The Roof

October 21, 2016, 12:50 AM UTC
Microsoft CEO Satya Nadella In India At Microsoft India Programme
NEW DELHI, INDIA - MAY 30: Satya Nadella, CEO of Microsoft Corporation, during the Microsoft India event Tech for Good, Ideas for India A conversation with young achievers, students, developers and entrepreneurs on May 30, 2016 in New Delhi, India. The India-born CEO, who is on his third visit to his home country since taking over as Microsoft head in February 2014, met Prime Minister Narendra Modi and other ministers to discuss issues pertaining to the IT sector and enhancing partnership for initiatives like Digital India. (Photo by Virendra Singh Gosain/Hindustan Times via Getty Images)
Photograph by Virendra Singh Gosain — Hindustan Times via Getty Images

Here’s one way technology businesses can keep their investors happy: Report growing sales in cloud computing and software.

Microsoft’s share price hit an all-time high of $60.75 in after-hours trading on Thursday—eclipsing a record set during the tech bubble in 1999—following a strong earnings report that showed profits beating Wall Street’s expectations. Additionally, the company’s future hope— its so-called “intelligent cloud” business—jumped 8% year-over-year to $6.4 billion in its latest quarter.

During an earnings call on Thursday, several analysts showered Microsoft CEO Satya Nadella with praise for the company’s cloud results. Companies like Amazon (AMZN) and Microsoft are pushing hard into cloud computing, which involves selling computing capacity and storage on an on-demand basis so that customers can avoid having to buy and maintain their own data center equipment.

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Analysts agree that Amazon’s cloud computing service is the leader in cloud computing in terms of the amount of customer data it stores and the computing resources it delivers to clients.

At first glance, it may seem like Microsoft had more cloud revenue in its latest quarter compared to Amazon, which took in $2.89 billion from its seemingly equivalent AWS business. However, Microsoft’s “intelligent cloud” unit includes sales of cloud software services like its Office 365 and Dynamics 365 sales tool and not just infrastructure services like data storage.

It would be more appropriate to compare the financial results of AWS against those of Microsoft’s Azure cloud computing service. That’s a more apples-to-apples comparison for cloud technology purists. But Microsoft did not disclose Azure’s quarterly results in such detail. It only said that Azure’s sales rose 116% year-over-year without disclosing the relevant revenue.

When an analyst asked Nadella to contrast Microsoft’s cloud strategy with Amazon’s, Nadella claimed that Microsoft is more committed to a so-called hybrid cloud approach in which companies use a mix of both cloud computing services and their own data centers. A hybrid cloud model could benefit more heavily regulated or older businesses that want to use cloud computing services when needed while still maintaining data in their own internal infrastructure, thus satisfying any legal requirements.

Another analyst asked Nadella to comment on a recent partnership between Amazon and data center software company VMware (VMW). Under the partnership, the two companies have created technology that will let customers more easily manage both their AWS and internal data center infrastructure, as long as it’s been outfitted with VMware software.

Without mentioning Amazon or VMware by name, Nadella said that he has seen many companies starting to brag about catering to the hybrid-cloud model.

“We’ll take that as a validation of something we thought of a long time ago,” said Nadella.

And while some cloud analysts may like Microsoft to provide separate financial results for Azure in addition to the rest of its cloud software services, it seems unlikely to happen anytime soon.

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Nadella said that Microsoft’s cloud strategy is “not just Azure, but also Dynamics and Office 365” and everything else the company lumps in. Customers don’t just want “cloud infrastructure, in particular,” but also work productivity software like Microsoft’s core Word and PowerPoint software.

“That is really the fundamental reason why customers choose us,” Nadella said.