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Microsoft shares hit five-year high despite Windows 8 flop

With solid earnings and big growth in corporate sales and cloud-computing technology, Microsoft's stock reaches levels not seen since 2007.

Microsoft CEO Steve Ballmer at the Windows 8 launch in New York last October. Microsoft

The news may seem bleak for Microsoft these days, what with Windows 8 sales disappointing, and the PC market itself sliding.

But don't tell Wall Street. Microsoft shares closed Tuesday at $33.10, their highest level in more than five years.

Microsoft shares have been moribund for the better part of the last decade. Investors have come to view the company, once the most valued stock in the world, as one with limited growth opportunity, particularly as rivals Apple and Google race ahead in key consumer markets.

The recent stock bounce, which gained momentum earlier this month, is largely a reflection of the strength of Microsoft's enterprise software and cloud services business. The software giant posted solid, but not spectacular, third-quarter results on April 18, making its biggest gains with business customers.

The company has seen good growth in its Office 365 productivity service. Microsoft recently noted that its Azure cloud computing technology is now generating more than $1 billion in annual sales. And last week, ValueAct Holdings disclosed that it has accumulated a $1.9 billion stake in Microsoft, bullish on its cloud-computing prospects.

Those gains in nonconsumer products and services come as PC sales founder. Earlier this month, market research firm IDC reported a sharp drop in worldwide PC sales, which are key to selling copies of Microsoft's Windows operating system. What's more, Windows 8, which debuted last fall, has failed to spark the jump in new sales that the company had hoped.

That led longtime Microsoft analyst Rick Sherlund of Nomura Securities to downgrade his rating on the company's stock to "neutral" from "buy" earlier this month.

"People were primed for (third-quarter earnings) to be worse," said Sid Parekh, an analyst with McAdams Wright Ragen in Seattle.

The fact that Microsoft withstood all the negative news and turned in a solid quarter, while some PC companies have stumbled, has helped fuel the recent stock gains.

"This is a company that's managing in a bad PC environment," Parekh said.