Microsoft Corporation (NASDAQ:MSFT) will report earnings after the bell Tuesday, which analysts at Wedbush say offers “no better barometer” of the cloud and enterprise sector.
In a note to clients, Wedbush reiterated its Outperform rating and $375 price target. Shares of Microsoft were little changed Monday afternoon at $344.02.
“When [Microsoft CEO Satya] Nadella talks, everyone listens,” analysts wrote. “Nadella & Co. in our opinion along with Jensen/Nvidia are the best barometers/indicators of AI spending globally and ultimately have a birds' eye view around the trajectory of AI use cases and IT budgets.”
A key number to watch is the growth of Microsoft Azure, the analysts said. Wedbush also predicts cloud revenue to beat expectations.
“We are seeing MSFT gain incremental share from Amazon and AWS in the field and core enterprise cloud workloads are right in Redmond's backyard with now an ChatGPT led AI path that is unique in the cloud world,” the analysts wrote.
“The cloud and AI ‘golden 1-2 punch’ has changed the game for Nadella & Co. and put the cloud stalwart in a massive position of strength heading into FY24. From a headline perspective we expect modest upside to the Street's $55 billion and $2.80 estimate.”
Looking farther ahead, Wedbush expects capital expenditures to increase in fiscal 2024, which the analysts call “a transformational AI Gold Rush opportunity.”
“We estimate for every $100 of cloud spend with Microsoft the last decade there is $35-$40 of incremental AI spend now on the horizon for MSFT the next 3-4 years,” they added.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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