The performance of Microsoft Corporation's MSFT Azure cloud segment and future artificial intelligence initiatives are keys to the stock for analysts after fourth-quarter financial results.
While Azure and AI got the headlines, one analyst was surprised by the lack of color on the impact the Microsoft Outage caused by a CrowdStrike Holdings CRWD update could have in the future.
The Microsoft Analysts
- Goldman Sachs analyst Kash Rangan reiterated a Buy rating and $515 price target.
- Oppenheimer analyst Timothy Horan reiterated an Outperform rating and $500 price target.
- Stifel analyst Brad Reback reiterated a Buy rating and $475 price target.
- BMO Capital analyst Keith Bachman reiterated an Outperform rating and $500 price target.
- Truist analyst Joel Fishbein reiterated a Buy rating and $600 price target.
- JPMorgan analyst Mark Murphy reiterated an Overweight rating and $470 price target.
- KeyBanc analyst Jackson Ader reiterated an Overweight rating and $490 price target.
- Piper Sandler analyst Brent Bracelin reiterated an Overweight rating and $485 price target.
Goldman Sachs: Strong early demand signal for Microsoft products justifies a ramp of spending, Rangan said.
Microsoft Azure's lower-than-expected growth, higher CapEx and soft guidance are less in focus Wednesday. The company's earnings call showed guidance for Azure in the first half of the next fiscal year and optimism for generative AI products.
"The anticipated uptick in CapEx is unlikely to sway MSFT away from its consistent Op Inc growth target, though may come at the expense of FCF growth more than we initially thought," Rangan said.
The analyst said Microsoft can capitalize on "a number of long-term secular trends" including generative AI, cloud consumption and digital transformation.
Oppenheimer: Weaker than expected Azure revenue in the fourth quarter could have been due to supply constraints, Horan said.
"Azure saw pushout in revenue on some supply constraints, but also as enterprises curate their data," Horan said.
The analyst said Microsoft can revisit its "PC-era-type dominance" with AI for enterprises.
Horan said capex spending will remain elevated to support future demand for AI and cloud offerings.
"The company remained very optimistic about AI demand and Copilot in particular," Horan said.
Azure AI ended the quarter with over 60,000 users, up 60% year-over-year. The company also reported that average spending per Azure AI customer is growing.
Stifel: Shares selling off after-hours is "short-term noise," Reback said in a new investor note.
The analyst said investors should focus on the "longer-term acceleration" for Microsoft.
"While the supply constraints and European consumption weakness create some near-term uncertainty, we believe the commercial bookings growth points to sustained revenue gains/free cash flow growth for years to come," Reback said.
BMO Capital: There were a few positives in the fourth quarter including free cash flow generation and upside for the Productivity and Business Processes, and More Personal Computing business segments, Bachman said.
Bachman said Microsoft missing on Azure guidance was the key takeaway and guidance for the future could also be viewed as disappointing for investors.
"Management noted that Azure growth will accelerate in 2HFY25, helped by reduced capacity constraints, which we think will be well-received by investors," Bachman said.
Microsoft's Azure business had beat estimates in the last three quarters and hadn't missed since the September 2022 quarter, the analyst added.
"We think Azure has a solid pipeline and note that AI still has a long runway ahead."
Truist: Capacity constraints in AI and weakness in Europe led to lower Azure growth, Fishbein said.
The analyst said demand signals remain strong for Microsoft going forward and non-Azure items saw strong performance in the quarter.
"There were many positive demand indicators for their family of Copilot products and AI services that management highlighted on the call spurring their continued path of increased capital and knowledge investments," Fishbein said.
Microsoft is "leveraging their AI footprint" for their portfolio of products, the analyst added.
"We continue to believe that we are in the very early innings of the rollout of generative AI apps."
Fishbein was surprised that Microsoft didn't provide more commentary on the outage caused by CrowdStrike.
"Ramification from global IT outage caused by CrowdStrike remains to be seen."
The analyst said there could be future settlements and discounts to customers.
JPMorgan: Lower Azure revenue growth may have been expected ahead of earnings Murphy said.
The analyst said survey research shows that Azure product momentum ratings had dropped before the quarterly results.
"We don't think investors were prepared to see Azure deceleration at this juncture because of the perceived improvement in optimizations and cloud migrations," Murphy said.
The analyst said the long-term growth for Azure and AI is clear.
"We believe Microsoft's AI momentum remains intact and long-term trajectory unperturbed."
Microsoft is in the "pole position" for the mega-trend of AI, the analyst added.
KeyBanc: Azure revenue, higher capex and a lack of acceleration for Office 365 Commercial revenue were three disappointments in the fourth quarter for Ader.
"Azure remains capacity-constrained on the AI front, which gives that line item some wiggle room as we wait for the expected acceleration in the second half of the year," Ader said.
The analyst said there is a level of trust for investors with Microsoft stock.
"Trust that AI will deliver on its promises, trust that assets aren't as fixed as they seem, trust that management would be willing to adapt under changing facts."
Piper Sandler: Record bookings in the fourth quarter could be greater than the disappointing Azure consumption, Bracelin said in a new investor note.
"The 3% AMC (after market close) sell-off in MSFT shares on Azure growth moderating slightly to 30% CC (constant currency) coupled with a $19B capex+lease investment shows the hypersensitivity to an AI overbuild narrative," Bracelin said.
The analyst said Microsoft had many positives in the quarter including record bookings of $10 million and $100 million in size, strong operating cash flow, AI demand ahead of capacity, and capex being used on "long-life assets" for future growth.
"We would be buyers on the weakness in MSFT."
MSFT Price Action: Microsoft shares are down 2% to $416.31 on Wednesday versus a 52-week trading range of $309.45 to $468.35.
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