Microsoft stock drops more than 7% on weak forecast

Shares of Microsoft closed more than 7% on Wednesday, a day after the company released its fiscal first quarter results.

Microsoft beat expectations on both highs and lows, but the stock was pressured by weak forecasts and cloud revenue that beat expectations.

Microsoft’s Intelligent Cloud business segment, which includes public cloud Azure, as well as Windows Server, SQL Server, Nuance and Enterprise Services, generated $20.33 billion in quarterly revenue, according to a company statement. That’s up 20% but slightly less than the consensus of $20.36 billion among analysts polled by StreetAccount.

Looking ahead, Microsoft expects to see revenue of $52.35 billion to $53.35 billion for the fiscal second quarter, implying 2% growth in the middle of the range. Analysts polled by Refinitiv were looking for revenue of $56.05 billion.

CEO Satya Nadella said on a conference call with analysts that cyclical trends were affecting Microsoft’s consumer business. Chief Financial Officer Amy Hood said weak PC demand in September will continue to affect Microsoft’s consumer segment and said to expect a drop in the 30 percent range for Windows revenue from device makers in the during the second fiscal quarter.

Goldman Sachs analysts were undeterred by weaker cyclical segments and reiterated their buy rating on the stock. They said there is potential for these segments to rebound and companies are more likely to offer cautious advice when faced with a challenging macro environment.

They believe there is potential for a reacceleration in revenue next year.

“Beyond the near-term momentum, we remain constructive as we see the company well positioned to continue to win contracts and expand its share of wallet within its existing customer base, even in a slower growth environment.” , they wrote in a note on Tuesday.

Morgan Stanley analysts also remain confident in Microsoft’s growth potential despite its weak cyclical areas and forecasts.

The strength of the company’s positioning for key secular growth trends “remains evident,” they said.

“Ultimately, while heavier cyclical weightings lower our FY23 EPS estimates, we remain strong believers in Microsoft’s longer-term secular growth story,” they said in a note on Wednesday.

Barclays analysts said Microsoft’s quarterly outlook came as a “negative surprise” for investors and macroeconomic challenges were slowing cloud migration.

However, they said in a note on Wednesday that while “equities are likely to react negatively in the near term,” the company’s management continues to target revenue and earnings that “should deliver relative outperformance.”

Microsoft shares have fallen about 25% so far this year, while the S&P 500 stock index is down 19% over the same period.

– CNBC’s Jordan Novet and Michael Bloom contributed to this report.