Don’t be alarmed by conservative guidance after a solid quarter, Jim Cramer says

CNBC's Jim Cramer on Thursday told investors not to get scared off when a company posts good earnings results but issues more modest guidance, as it doesn't always mean that management is worried about the future.
"Some money managers are dumbfounded when a very good company reports a very good quarter but then issues a very conservative forecast," Cramer said. "They take the forecast as gospel. They believe that management's truly worried about the future, so they get scared — the trick — and then they sell and they miss the treat."

CNBC's Jim Cramer on Thursday told investors not to get scared off when a company posts good earnings results but issues more modest guidance, as it doesn't always mean that management is worried about the future.

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"Some money managers are dumbfounded when a very good company reports a very good quarter but then issues a very conservative forecast," Cramer said. "They take the forecast as gospel. They believe that management's truly worried about the future, so they get scared — the trick — and then they sell and they miss the treat."

To Cramer, most earnings require nuance to parse. Investors shouldn't automatically sell just because a company didn't raise guidance or issued an outlook somewhat below expectations. Sometimes, he said, it's worth it to hold on to a company with good earnings while others on Wall Street panic about guidance.

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He first reviewed Microsoft's recent quarter. While the tech giant beat on earnings and revenue, it guided for slower growth than analysts expected. For the current quarter, Microsoft predicted revenue between $68.1 billion and $69.1 billion, while analysts surveyed by LSEG were hoping for $69.83 billion. Microsoft reported Wednesday night, and Thursday's session was its worst in two years, with the stock down about 6% by close.

Despite the disappointing guidance, Cramer was appeased by management's explanation for the weaker guidance, particularly commentary from CFO Amy Hood. Hood said the company's cloud business had more demand than it could handle. But she added that growth for its cloud computing segment, Azure, should pick up during the second half of the fiscal year, "as our capital investments create an increase in available AI capacity to serve more of the growing demand."

"For as long as I have known Amy Hood, and that's probably about three decades, she's been conservative in giving outlooks," he said. "It's a big reason why she's so great at her job. She never overpromises, and she's more than likely to over deliver on her projections."