Microsoft Corporation (NASDAQ:MSFT) shares declined after the company reported second-quarter earnings that beat expectations but disappointed investors with a small quarter-over-quarter decline in the growth of its Azure cloud services business.
Still, analysts at Wedbush are upbeat, maintaining their ‘Outperform’ rating on the stock and increasing their price target to $400 from $375.
“The AI commentary was bullish as the MSFT currently has 11,000 enterprises on Azure OpenAI Service with a massive golden opportunity ahead for Redmond,” the analysts wrote in a client note.
“The stock sold off modestly after hours as (CEO Sayta) Nadella & Co. commented that the AI ramp will be ‘gradual’ in FY24 which is not a surprise to the Street as FY25 remains the true inflection year of AI growth with pricing, beta customers, and use cases all being rolled out over the next three to six months.”
The analysts noted that total revenues of $56.19 billion were above Wall Street estimates of $55.49 billion while earning per share (EPS) came in at $2.69 versus the Street’s $2.55 estimate as the company “flexes its muscle” with more enterprises moving to the cloud, while AI demand adds another key revenue driver down the line.
While PC weakness has been a drag, management provided relatively solid quarterly guidance led by Azure revenue growth in the region of 25% to 26% on a constant currency basis, above the 23.5% forecast by the Street and pointing to its strong demand for AI services, the analysts wrote.
“Redmond aims to support cloud growth and the AI platform by accelerating investments in its cloud infrastructure while driving its operating leverage to meet demand expectations,” they added.
Microsoft’s shares were down 4.5% at $335.19 shortly after midday on Thursday.
Contact the author at stephen.gunnion@proactiveinvestors.com