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According to reports, Microsoft has announced strong earnings in the third quarter, with $21.7 billion in revenue.Stephen Brashear/Getty Images

Investors looking for upside in the mixed earnings from two of the world's biggest technology companies can look to the cloud.

Reporting on Thursday, Microsoft Corp. and Amazon.com Inc. both showed signs of dominant businesses in transition.

For the first time, Amazon.com, a company known primarily for its online retail portal, broke out the sales of its Amazon Web Services unit, which offers cloud computing to a variety of high-profile apps including Netflix Inc. and Canadian social media startup Hootsuite. Sales for the first quarter were up 49 per cent and revenue reached $1.57-billion (U.S.), and the business was profitable, adding $265-million to Amazon's bottom line.

"People should be positive on this," said Michael Pachter, an analyst at Wedbush Securities in Los Angeles.

"They're making a very healthy margin with AWS and they should get a higher margin as they continue to grow." The Seattle-based company's main business is still online retail, and earnings surpassed analyst expectations with net sales of $22.72-billion for the quarter, up 15 per cent. However, the company's long-held trend of sacrificing profits for growth continued as international sales were a trouble spot, losing the company $76-million on $7.7-billion revenue. Tack on another $407-million loss due to stock-based compensation and the company's quarterly loss was $57-million, in line with analyst expectations.

Amazon.com founder and chief executive officer Jeff Bezos used the earnings release to thank long-suffering investors. "Amazon Web Services is a $5-billion business and still growing fast – in fact, it's accelerating.

"We manage by two seemingly contradictory traits: impatience to deliver faster and a willingness to think long term. We are so grateful to our AWS customers and remain dedicated to inventing on their behalf."

Microsoft, Amazon's closest competitor in cloud computing, also reported mixed results. With $21.7-billion in revenue and earnings of 61 cents per share, the quarter beat analyst exceptions of $21.1-billion and 51 cents respectively, though just barely.

The Redmond, Wash.-based company's cloud business, however, proved to be a bright spot. Microsoft's "commercial cloud" revenue jumped 106 per cent on the year. With its Azure cloud-computing business and Office 365 products in the lead, Microsoft's cloud is now a $6.3-billion-a-year business, up about $1-billion from a year before.

"Right now more than five million organizations are using Azure," CEO Satya Nadella said on the company's earnings call, touting the company's cloud business. He pointed to online storage as metric for the platform's growth: "We have 50 trillion objects stored in Azure, a three-times growth from last year."

"They've got a growing cloud number that isn't stopping," said Mark Moerdler, an analyst with Sanford C. Bernstein & Co.

Microsoft also saw strong growth in Surface tablet sales: $713-million in revenue for the quarter was up 44 per cent. A hoped-for bump in Xbox platform sales did not seem to appear, and those revenues were not broken out in the reporting.

Microsoft is still struggling to manage through declines in PC sales. Analysts expected slowness in the company's commercial revenues: Just as it did in the previous quarter, revenue grew by only 5 per cent, falling to $12.8-billion from $13.3-billion. Poor performance in this sector (related to slower enterprise PC sales a year after Windows XP's end of support forced businesses to upgrade) knocked Microsoft's share price down last quarter.

"The company beat across the board after a jaw dropper last quarter," said Daniel Ives, an analyst at FBR Capital Markets & Co. in New York. "Despite PC headwinds the company is doing a good job stabilizing the ship on the Windows front while cloud continues to be a major pillar of strength."

What should be a bright spot for for Microsoft – the arrival of the new Windows 10 operating system later in 2015 – could instead pose some challenges. It's a free upgrade for consumers, which could drive users to avoid upgrading old PCs. Worse, some analysts believe hardware partners may want a discount in the fees they pay Microsoft to install Windows on their machines.

For both companies, cloud businesses are going to have to keep growing at these rapid clips in order to offset the weaknesses in their underlying businesses.

Gartner estimates that the total public cloud services market totalled $152.45-billion in 2014 and is expected to grow 16 per cent to $176.38-billion in 2015.

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