Shares in the software behemoth, worth more than $2 trillion, initially sold off after-hours despite better-than-expected earnings of $2.48 per share, compared with the $2.31 per share expected by analysts. Spoiled by more impressive numbers in the past, analysts couldn’t hide their disappointment over the tame performance in the company’s second quarter.

“It was not what the buy side wanted, this is not good for tech. It certainly is the smallest beat we’ve seen from Microsoft for a while,” Brent Thill of Jefferies told CNBC right after the figures crossed the tape. “This is not reassuring. Microsoft sets the tone for tech and the rest of software.” 

With fresh concerns that COVID-19 may have only pulled sales forward, drying up future demand, all eyes then turned to the investor call with management for guidance on the company’s fiscal second half. That’s when CEO Satya Nadella delivered for Microsoft investors—and potentially the broader tech sector as a whole.

After hiking his full-year operating profit margin guidance on the back of continued strength in Microsoft’s lucrative Azure cloud computing platform, he dismissed fears businesses might not need as many Microsoft products in a post-COVID economy as they did when the outbreak began in order to connect to customers.

“Coming out of the pandemic we’re seeing actually a lot of constraints in the economy,” he told analysts. “And the only resources that can help drive productivity while keeping costs down is digital tech.”

Whereas businesses needed Microsoft’s help in order to simply reach customers and enable commerce following the first wave, he said, now their needs are merely shifting in character rather than diminishing.  

“Supply-chain insights became the most important thing, and that’s where the demand picked up,” he said. 

Metaverse play

The Microsoft CEO said IT spending as percentage of GDP—anywhere from one to 10 years down the line—would only rise: “We’ve got to do a good job of seeing the trends before they are conventional wisdom and gain share, so that’s where we’ll remain focused.” 

With Nadella assuring investors the trend toward digitizing everything from people and places to things remained fully intact, he succeeded in reversing the earlier after-hours plunge. Shares are now expected to open nearly 4% in the green.

Nerves had been on edge amid the ongoing rout in the Nasdaq, down 13% since the end of last month on fears the inflation genie may be out of the bottle. Sparked by fears the Federal Reserve will remove the monetary punch bowl it has been spiking since the start of the pandemic, investors have been dumping tech stocks across the board.

As the economy gradually opens back up again, the return to a new normal has obliterated the growth story of previous stock market darlings that benefited from the outbreak, like at-home stationary exercise bike maker Peloton and streaming giant Netflix.  

Investors were worried in particular about Microsoft’s outlook, not the least owing to the worrying indicator that Nadella sold half his shares in the company at the end of November.

The company also made an unusual decision to launch its biggest acquisition to date, agreeing last week to plow $69 billion into the purchase of video game studio Activision Blizzard—a possible signal that core businesses like Azure spotted trouble on the horizon.

Unlike its $7.5 billion deal in September 2020 to buy the parent company of Bethesda Games, makers of popular franchises Elder Scrolls and Fallout, its latest and far more expensive trophy has seen interest in titles like Call of Duty and World of Warcraft wane among some gamers.

Nadella, who justified the acquisition as a play on the evolving metaverse, remained upbeat, noting that the company’s range of services were tailored for business needs at this technological juncture.

“We feel very well positioned to be able catch what I think is essentially the next wave of the internet,” Nadella said. “Just like the first wave allowed everybody to build a website, I think the next one will be a more open world where people can build their own metaverse worlds, whether they’re organizations or game developers or anyone else.”