Microsoft Q4 Earnings Preview: Analyst Says 'Stock Still Has Yet To Fully Price In ... Next Wave Of Cloud And AI Growth'

Among the largest companies to report quarterly earnings during the trading week is Microsoft Corp MSFT with investors and analysts eyeing continued growth of Cloud and artificial intelligence efforts.

Earnings Estimates: Analysts expect Microsoft to report fourth-quarter revenue of $64.36 billion according to data from Benzinga Pro.

The company reported revenue of $56.19 billion in last year's fourth quarter. Microsoft has beaten analysts' estimates for revenue in eight of the past 10 quarters, including five straight quarters.

Analysts expect the company to report fourth-quarter earnings per share of $2.93 compared to $2.69 in last year's fourth quarter. The company has beaten analysts' estimates for earnings per share in nine of the past 10 quarters, including seven straight quarters.

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What Analysts Are Saying: The ongoing AI Revolution and Microsoft's growth from the sector is one of the key items Wedbush analyst Dan Ives will be watching when the company reports.

"Microsoft and Nvidia are the two best barometers in technology on the pace of AI adoption globally," Ives said.

The analyst maintained an Outperform rating and $550 price target in a new investor note.

Ives said channel checks show a potential "robust" quarter for Microsoft with the company "in the driver's seat" of the AI tidal wave. The analyst said cloud deal flow for Azure is seeing strong momentum.

"The most important metric will be Azure growth with the Street's bogey of 30%, which we believe is beatable in our view given the high level of deal activity during the quarter from core MSFT enterprise customers on the cloud."

The next three years could see over 70% of the Microsoft installed base on AI-driven functionality for enterprise and commercial, the analyst added.

"We strongly view this as Microsoft's ‘iPhone Moment' with AI set to change the cloud growth trajectory in Redmond the next few years and recent checks giving further confidence in this dynamic."

Ives estimates Copilot deployments for Microsoft customers could add $25 billion to the company's top-line revenue in fiscal 2025.

"We believe the stock still has yet to fully price in what we view as the next wave of cloud and AI growth coming to Redmond as AI enterprise use cases catalyze more budget dollars to AI in 2024/2025."

Ives said Microsoft is starting to hit the "next gear of growth" with artificial intelligence the story going forward.

Here are other analyst ratings for Microsoft and their price targets in the month of July:

Piper Sandler: Reiterated an Overweight rating and raised the price target from $465 to $485

TD Cowen: Maintained a Buy rating and raised the price target from $470 to $495

Bank of America: Maintained a Buy rating and raised the price target from $480 to $510

Mizuho: Maintained an Outperform and raised the price target from $450 to $480

BMO Capital: Maintained an Outperform rating and raised the price target from $465 to $500

Argus Research: Maintained a Buy rating and raised the price target from $475 to $526

Key Items to Watch: Microsoft has been in the news a lot recently related to an outage caused by CrowdStrike Holdings CRWD that took down computers running Windows.

While the Microsoft Outage won't likely have a key impact on customer churn, analysts could look to ask the company how it is moving forward from the key event.

While AI and Cloud get the headlines, the company's gaming division led by Xbox could also be a key item for investors to watch. Microsoft has made several gaming-related acquisitions in recent years and has a reported new console coming out in the next couple of years.

With the full fiscal year in the books, Microsoft could provide guidance for the next fiscal year.

MSFT Price Action: Microsoft shares are up 0.34% to $426.73 Monday at market close versus a 52-week trading range of $309.45 to $468.35. Microsoft stock is up 14% year-to-date in 2024.

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