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Microsoft shares are up on Wednesday after a strong earnings report.

Drew Angerer/Getty Images

Tech investors are likely breathing a sigh of relief on Wednesday.

Of course the


Nasdaq Compound

The index, a proxy for U.S.-listed tech stocks, remains down more than 14% this year, firmly in correction territory. But there was good news from


Microsoft

(ticker: MSFT) late on Tuesday, and no doubt that helps sentiment, with the Nasdaq on track to open nearly 2% higher on Wednesday.

The software giant reported quarterly revenue of $51.7 billion, up 20% from last year’s levels and above the $50 billion milestone for the first time. Earnings per share rose 22% to $2.48, beating Wall Street expectations for $2.31 per share.

While market reaction was initially muted and the stock initially fell after hours, Microsoft shares then surged and are now up 3.7% in premarket trading on Wednesday. For that, investors can thank the strong outlook for the March quarter detailed in the company’s earnings call.

“We believe investors have been reassured, with leading indicators accelerating, including strength in commercial bookings and prospects for faster Azure revenue growth in the next quarter,” said analyst Tyler Radke. at Citi. “Megacap continues to deliver impressive double-digit revenue and net income growth at scale.”

Radke is pricing Microsoft Buy with a target price of $386, implying an upside of around 33%.

“We continue to view Microsoft as our top megacap,” the analyst added. “We view the company’s double-digit growth formula as distinguished and defensive.”

The stock market, as well as some specific stocks, could go higher with Microsoft.

Wall Street was looking for strong results from Microsoft, and they got it in spades. The tech sector has been battered this year and analysts have identified Microsoft, the first tech giant to report earnings this season, as key to setting the tone.

While Microsoft’s bullish guidance was a boost for Wall Street, its earnings details also boosted sentiment among peers in enterprise software and cloud computing.

Some analysts have suggested software sales may slow in 2022, particularly in the enterprise segment, as business spending declines as working from home begins to become less permanent.

What Microsoft has instead shown is that companies should continue to spend on software and that Azure, its cloud computing platform, will grow even faster.

Radke said there were positive signs in Microsoft’s earnings, particularly booking strength, for its peers in enterprise software and cloud computing.

In business, these names are


ServiceNow

(NOW),


Teradata

(PMH),


Ansys

(ANSS),


Computer science

(INFA), and


cool systems

(PLEASANT). In the cloud, Radke pointed out


Datadog

(DDOG),


MongoDB

(MDB),


Elastic

(ESTC),


Snowflake

(SNOW),


Confluent

(CFLT), and


Hashi Corp.

(HCP).

Write to Jack Denton at [email protected]