Microsoft Analysts: Q1 Shows Payoff From Cloud Shift, Azure Narrowing The Gap With AWS

Microsoft reported first-quarter revenue and earnings per share that came in ahead of consensus estimates Tuesday.

Azure and the gaming sector were highlights for the Street analysts who cover the tech giant. 

Azure A Q1 Highlight: Raymond James analyst Robert Majek reiterated a Strong Buy rating on Microsoft Corporation MSFT with a $235 target price. 

“We remain very enthusiastic about the company’s long-term secular growth story as a dominant vendor that is consolidating IT spend and maintaining its strong competitive position as one of three leading hyperscale cloud vendors,” the analyst said. 

Wells Fargo analyst Philip Winslow called Microsoft’s growth “robust” and said the company is not being fully appreciated by the consensus.

Microsoft had a record number of multimillion-dollar commercial cloud deals, he said. 

“We view Azure as a key beneficiary of an accelerated shift to infrastructure and platform-as-a-service.”

Wells Fargo has an Overweight rating on Microsoft with a $250 price target.

Wedbush analyst Daniel Ives called out the contrast between Microsoft’s earnings and those of SAP SAP.

“We believe the strong numbers from Nadella & Co. is a broader indication of strength,” the analyst said, adding that Microsoft is “leading the way.”

Microsoft could be narrowing the gap in the cloud market with Amazon.com AMZN and its AWS platform, Ives said.

Wedbush has an Outperform rating on Microsoft with a $260 price target. 

Related Link: Microsoft Teams Adds 475% Daily Active Users In About A Year

Gaming Sector Growth Ahead: The gaming segment was strong in the quarter, said Wells Fargo's Winslow. 

“[The] pending acquisition of ZeniMax [is] bringing a material increase to content available on Game Pass,” the analyst said. 

Stifel analyst Brad Reback reiterated a Buy rating on Microsoft with a $245 price target. 

“Microsoft expects very strong demand following the launch of its next generation Xbox Series X and S consoles driving supply-constrained hardware revenue growth of approximately 40%,” the analyst said. 

Xbox content and service revenue should grow in the “low 20% range, with strong engagement and continued momentum in GamePass subscribers.”

The outlook from Microsoft does not include any impact from the ZeniMax acquisition, Reback said.

What’s Next: Analysts are bullish on Microsoft going forward.

“We believe Microsoft can deliver mid-teens revenue growth,” said Well's Fargo's Winslow.

Ives said the guidance from Microsoft could be an “under promise and over delivery strategy.”

Workloads in the cloud are expected to rise from 33% today to 55% in 2022, the analyst said. 

“We believe this work from home shift could clearly accelerate the cloud trend by roughly a year.”

MSFT Price Action: Shares of Microsoft were trading down 3.85% at $205.03 at the time of publication Wednesday. 

Photo courtesy of Microsoft.