Microsoft Analysts See A Bright Future Following Strong Q2 Earnings; Cloud Computing A Major Driver

Microsoft Corporation MSFT shares are advancing strongly following the release of the company's quarterly results.

The Microsoft Analysts: Piper Sandler analyst Brent Bracelin maintained an Overweight rating and a $352 price target on Microsoft shares.

Rosenblatt Securities analyst Blair Abernethy maintained a Buy rating and a price target of $349.

Wedbush analyst Daniel Ives has an Outperform rating and a $375 price target. The firm also kept the stock on its "Best Ideas List" and named Microsoft one of its favorite tech names for 2022.

RBC Capital Markets analyst Rishi Jaluria maintained an Outperform rating and a price target of $380.

Wells Fargo Securities analyst Michael Turrin has an Overweight rating and a $425 price target.

The Microsoft Theses:

Piper Sandler Recommends Buying Microsoft On Favorable Risk-Reward: Microsoft's commercial bookings surged 32% higher year-over-year, accelerating from the 11% growth in the previous quarter, underlining enterprise appetite to invest in cloud computing, Piper Sandler's Bracelin said in a note. Azure growth, excluding currency impact, moderated from 48% to 46%, he added.

Azure revenue, however, crossed $40 billion on an annualized basis and remains poised to grow by 46% in the March quarter, the analyst said.

"The 1H operating margin of 44% reinforces our view that a cloud transformation has not only strengthened Microsoft's growth prospects but also enhanced profitability," he said in the note.

Bracelin expects Azure revenues to double within three years to over $86 billion.

Piper Sandler recommends growth investors buy Microsoft shares on favorable risk-reward following the 14% year-to-date pullback.

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Rosenblatt Dissects Segmental Performance: Microsoft reported solid second-quarter results, with better-than-expected revenues of $51.7 billion and third-quarter revenue guidance that is 2% above consensus, Rosenblatt's Abernethy said.

Among the company's segments, Productivity and Business Processes revenues rose 19% to $15.9 billion, with Office Commercial product revenues climbing 14%, LinkedIn by 37% and Dynamics 365 by 44%, the analyst noted.

More Personal Computing revenues rose 15% to $17.5 billion, driven by the release of Windows 11 and market share gains, Abernethy said. Meanwhile, gaming revenue rose 8%, but Surface revenue was down 8% on a tougher comparison, he added.

Wedbush Lauds Cloud Growth: Microsoft's cloud guidance was stronger than the Street estimate, and factoring in forex headwinds, this is a blowout guidance, Wedbush analyst Ives said.

On the bottom line, non-GAAP EPS of $2.48 was well above the Street estimate of $2.32, with a robust operating margin of about 43%, the analyst said.

"We note one of the strongest metrics this quarter for MSFT was represented by robust commercial bookings growth driven by long-term Azure commitments, showing accelerating strength and an increase of 32% y/y," Ives wrote in the note.

RBC On Key Takeaways From The Call: Demand commentary for Cloud was largely positive, with broad-based demand across industries and large long-term Azure deals contributing to the strong commercial bookings acceleration, RBC's Jaluria said.

Microsoft showed off multiple growth drivers, including its Security, Advertising and Gaming businesses, the analyst noted. More Personal Computing surprisingly showed the most revenue upside to consensus, with Windows benefiting from strong commercial PC demand, he added.

The analyst noted that operating margin was up 150 basis points year-over-year and nicely above consensus.

"Stepping back, we like Microsoft for its market leadership position in many critical areas of software, strong momentum with Azure and Teams, and multiple growth drivers," Jaluria said.

Azure A Share Gainer, Wells Fargo Says: Microsoft is well-entrenched within several significant end markets, Wells Fargo's Turrin said. Azure, according to the analyst, is a share gainer in the cloud Infrastructure as a Service (IaaS) wars.

Microsoft shares are the cleanest way to "play the continued shift of IT purchasing $s towards software and cloud," the analyst said.

Microsoft Price Action: At last check, Microsoft shares were advancing 4.33% to $300.98.

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Photo: Courtesy of Mike Mozart on Flickr