“In this environment, we remain convicted on three things. This is an important time for Microsoft to work with our customers, helping them realise more value from their tech spend and building long-term loyalty and share position, while internally aligning our own cost structure with our revenue growth.

“This in turn sets us up to participate in the secular trend where digital spend as a percentage of GDP is only going to increase. And lastly, we’re going to meet in the AI era, knowing that maximum enterprise value gets created during platform shifts.”

None of this was a huge surprise given Microsoft’s moves in the last week, first cutting 10,000 jobs and then investing $US10 billion ($14 billion) in OpenAI, the maker of ChatGPT.

But the reality of what that will look like for the group’s earnings was then laid out by Hood, who used the words “decline” and “decelerating” to describe what is coming in most Microsoft divisions in the coming months.

And Nadella pointed out that what he repeatedly called a coming period of optimisation by companies – essentially finishing off current tech projects and getting as much as possible out of them, rather than jumping into the next thing – would take a little while to play out.

Eventually, he argues, the savings from this previous wave of tech projects will be ploughed back into new ones. But this will take a little while to play out and the next wave of projects “don’t start instantly at that peak usage. They start and then they scale.”

Investors suddenly realised that the revenue beat they had got so excited about represented the company’s slowest pace of growth in six years. Remarkably, the company’s stock plummeted in after hours trade, with that 5 per cent gain becoming a 1 per cent loss.

Now, Hood pointed out that Microsoft is expecting just 1 percentage point of margin decline in the coming year, so the pain Microsoft is set to feel needs to be seen in context.

And you certainly can’t fault Nadella’s strategy. Leaning into a world of cost-cutting by cutting its own costs and helping customers cut theirs (including through the deployment of AI) will help Microsoft protect both market share and profit margins.

But it’s important not to forget what Microsoft is saying: economies are slowing and businesses are spending less, and this cycle has a way to go. It’s a reality check for the tech sector, and for bulls more broadly.

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