January has been great for the Nasdaq Composite (^IXIC +0.42%), as the index has mounted a solid recovery to claw back some of its lost ground from 2022. However, investors can't expect the Nasdaq to rise every day, and stock index futures suggested that Wednesday might be a tough day for the Nasdaq, falling 1.35% in premarket trading.
Most market participants had their attention squarely on Microsoft (MSFT +2.07%), which reported its latest financial results late Tuesday and disappointed some investors with its outlook on the cloud computing side of its business. However, Microsoft wasn't the only stock that weighed on the Nasdaq's prospects, as robotic surgical equipment specialist Intuitive Surgical (ISRG 0.18%) saw its stock fall even more sharply. Here's why investors are worried enough to pull the entire Nasdaq lower Wednesday morning.
Microsoft's forecast spooks investors
Shares of Microsoft were down roughly 3% in premarket trading Wednesday morning. The software giant reported its fiscal second-quarter results for the period ending Dec. 31, 2022, and the numbers reflected the weakness in the broader economy as well as some reluctance among tech customers to spend as much as they have in recent years.
Microsoft's second-quarter revenue came in at $52.75 billion, which was up 2% year over year. However, adjusted net income fell 7% to $17.37 billion, producing adjusted earnings of $2.32 per share.
NASDAQ: MSFT
Key Data Points
Microsoft's segment results provided more detail on the cross-currents affecting its overall business. The company's cloud computing segment saw sales rise sharply, but the rate of that growth slowed from past periods, coming in at just 18%. Revenue from Microsoft Azure and other cloud services was up 31% year over year. Yet the personal computing segment suffered from plunging demand, as sales dropped 19% on a 39% decline in sales of the Windows operating system to original equipment manufacturers. Splitting the difference was the productivity and business processes segment, where sales were up 7% on general strength in commercial demand for the Office productivity software suite.
By themselves, those results didn't faze Microsoft shareholders. But on the conference call after the release, the software giant's leaders made numerous comments about the caution with which its business customers are considering new spending on technology. That's true among advertisers on LinkedIn, as well as prospective buyers for Azure and Office 365. That was enough to send a chill across the cloud computing industry, and that has consequences that will extend well beyond Microsoft itself.
Intuitive Surgical looks a little light-headed
Elsewhere, shares of Intuitive Surgical also pulled the Nasdaq down. The robotic surgical stock dropped 9% after releasing a disappointing fourth-quarter financial report.
Intuitive's key metrics were mixed. Revenue of $1.66 billion was up 7% year over year, but adjusted net income dropped 7% to $439 million. That worked out to $1.23 per share. Global procedure volumes were 18% higher during the fourth quarter than they were during the same period a year earlier, but Intuitive only delivered 369 of its da Vinci surgical systems, down 4% from the fourth quarter of 2021.
NASDAQ: ISRG
Key Data Points
Intuitive cited the COVID-19 pandemic as a key factor, as the upsurge in cases in China during the last three months of 2022 affected surgical procedure volumes. Intuitive gets a sizable chunk of its revenue from the instruments and accessories that get used during procedures, so declines in volumes have a direct impact on sales.
Most investors believe that robotic surgery is still the wave of the future and will continue to grow. But that doesn't mean it won't have ups and downs, and given the stock's relatively high valuation, even modest disappointments could have a big impact on Intuitive Surgical's share price in the future.
