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Wall Street apparently thinks that Microsoft's turnaround strategy is working out.
On Thursday, the company reported fiscal first-quarter earnings results and a commercial cloud annual revenue run rate of more than $13 billion. The stock spiked up more than 5 percent in after-hours trading.
Institutional investors have been laser focused on this number, looking for proof that Microsoft CEO Satya Nadella is successfully leading the company away from old businesses into high-growth cloud services.
Analysts had been looking for a lower annual revenue run rate closer to $12 billion, so this figure came as a nice surprise.
Most importantly to Wall Street, the company also grew margins for the commercial cloud segment, showing it's able to squeeze more money out of its lower-margin cloud business. The company increased commercial cloud margins to 49 percent, up from 42 percent last quarter, handily beating analyst expectations.
"Our first-quarter results showed continued demand for our cloud-based services," said Amy Hood, executive vice president and chief financial officer of Microsoft, in an earnings press release. "We continue to invest, position ourselves for long-term growth and execute well across our businesses."
Microsoft's cloud divisions, Productivity and Business Processes which encompasses Office 365, and Intelligent Cloud which includes Microsoft Azure, delivered $6.7 billion and $6.4 billion, respectively.
With these strong cloud results, Microsoft seems to have won over investors, many of whom were spooked earlier this week when IBM reported disappointing results for its cloud business.