Microsoft (ticker: MSFT) is set to release its June quarter earnings after market close on Tuesday. Investors are eagerly awaiting updates on the company’s Azure cloud computing arm and its rapidly expanding work in artificial intelligence.
Impressive Performance and Market Position
Microsoft’s shares have surged by 44% year-to-date, reaching a new record high. With a market capitalization exceeding $2.5 trillion, the software giant holds the second-highest valuation, trailing only Apple by a margin of $1 trillion. This remarkable growth highlights investor confidence in Microsoft’s aggressive pursuit of generative AI technologies. Notably, the company recently unveiled a new version of its Bing search engine and AI “copilot” tools integrated into various applications, including the popular Microsoft 365 suite.
Key Factors: Azure Cloud Computing and Outlook
The market’s response to Microsoft’s fiscal fourth-quarter results will heavily depend on the growth and outlook of its Azure cloud computing unit. While the unit’s growth has gradually decelerated from 51% in the June 2021 quarter to 27% in the March quarter (or 31% adjusted for currency exchange rates), analysts’ consensus estimates for the June quarter indicate 25% growth (or 26.5% adjusted for currency).
Sales and Profit Estimates
Market expectations anticipate June quarter sales of $55.5 billion, representing a 7% increase, with expected profits of $2.55 per share, up from $2.23 per share in the previous year.
Guidance for Reporting Segments
Microsoft typically provides guidance for each of its reporting segments. For the quarter, the company projects revenue from its Intelligent Cloud segment, which includes Azure, to range between $23.6 billion and $23.9 billion, indicating a growth rate of 15% to 16%. In the Productivity and Business Processes segment, which encompasses Office, revenue is projected to range from $17.0 billion to $18.2 billion, implying growth between 6% and 10%. As for the More Personal Computing segment, which includes Windows, Xbox, and Bing, among other offerings, revenue is forecasted to range from $13.35 billion to $13.75 billion, reflecting a decline of 4% to 7%, attributed to weak personal computer sales.
Raymond James Analyst’s Upgraded Rating on Microsoft Shares
Raymond James analyst Andrew Marok has reiterated his Outperform rating on Microsoft shares and raised his target price to $400, up from $320. In his research note, Marok acknowledges the overwhelmingly positive sentiment surrounding Microsoft, with a particular focus on artificial intelligence (AI) dominating discussions within the tech industry. He also highlights Microsoft’s enviable position as a leader in this new technology.
Marok emphasizes that investors are looking for a modest deceleration in Azure growth, favorable commentary on the cloud outlook for fiscal 2024, and some insights into the company’s AI prospects. He firmly believes that Microsoft is in the best position to leverage the long-term tailwinds that AI will bring to the tech space.
Wedbush Analyst’s Optimism for Microsoft Stock
Wedbush analyst Dan Ives shares the bullish outlook on Microsoft stock ahead of earnings, maintaining an Outperform rating and setting a target price of $375. Ives suggests that the upcoming earnings report will have implications not only for Microsoft’s own shares but for the overall cloud and enterprise spending environment.
Ives expects a positive outcome for the June quarter, anticipating a beat in cloud performance. He also predicts Microsoft will provide optimistic commentary on cloud and AI spend, as well as general caution regarding the macroeconomic landscape. Ives believes that Azure’s growth may surpass Street consensus by 2-3 percentage points.
Street Consensus for September Quarter
For the September quarter, analysts estimate that Microsoft will generate sales totaling $55 million. This estimate includes $18.1 billion from Productivity and Business Processes, $23.5 billion from Intelligent Cloud, and $13.2 billion from More Personal Computing. Profit estimates for the quarter stand at $2.61 per share.
