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Microsoft's turnaround strategy appears to be working

Lesko on MSFT: Tremendous earnings power going forward

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.

Here are all the details on Microsoft's earnings.