Microsoft Corporation (NASDAQ:MSFT) shares rose Wednesday on strong third-quarter results driven by its cloud division and AI services, and analysts largely liked what they saw.
Bank of America raised its price target to $415 from $405 while UBS and Jefferies maintained $400 targets, with all repeating a Buy rating. Microsoft stock traded 2.4% higher Wednesday morning at $338.59.
BofA pointed to Azure, Microsoft’s cloud platform, which performed particularly well with revenue growth marked at a better-than-expected 29%.
“While AI, enterprise mobility and security drove healthy Azure upside, new Azure workloads (excluding AI) were weighed down by the still tough macro,” the analysts wrote. “We believe that macro improvement could drive upside to an already solid outlook for 26-27% [constant currency] growth as we move through the year.”
Riding the AI wave
AI will play an increasingly important role in future prints, Jefferies analysts argued.
“While adoption remains early, MSFT delivered a flurry of AI data points indicating real demand which should sustain double-digit org revenue growth,” Jefferies analysts wrote.
“AI wave continues to build with incredible demand & pricing leverage. While enterprise AI adoption remains early, we were pleased to hear that nearly 37,000 organizations (up 40% quarter-over-quarter) have subscribed to GitHub Copilot for Business. Further, we were impressed to hear that 15,000 orgs have adopted MSFT Sales Copilot.”
'Stable' Azure guidance
UBS analysts sang a similar tune.
“Against a backdrop of reasonable/measured AI/macro investor expectations into the print, Microsoft posted clean top-to-bottom numbers, highlighted by a solid Azure and AI beat as well as an increase to the core [excluding Actviision] operating margins in FY24,” UBS analysts wrote.
“In our view a majority of investors are likely to conclude that this ‘stable’ Azure guidance into 2024 looks conservative and we concur. Bottom line, despite the guidance, we are raising our Azure estimates and continue to model a gentle acceleration in CY24.”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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