Microsoft
will report June quarter earnings after the close of trading on Tuesday, with investors zeroed in on the outlook for the company’s Azure cloud computing arm and its rapidly expanding work on artificial intelligence.
Microsoft (ticker: MSFT) shares have rallied 44% so far this year, recently setting a record high. With a market cap above $2.5 trillion, the software giant is worth more than any other company aside from
Apple
; It has a $1 trillion lead on third-place
Alphabet.
The latest surge reflects investor enthusiasm for the company’s aggressive push into generative AI, including a new version of its Bing search engine and AI “copilot” tools for many of its applications, including the Microsoft 365 application suite.
The market’s response to the company’s fiscal fourth-quarter results also will depend in no small measure on the growth—and outlook—for the company’s Azure cloud computing unit. Growth in the unit has been gradually decelerating, from 51% in the June 2021 quarter, to 27% in the March quarter (or 31% adjusted for currency exchange rates.) For the June quarter, consensus estimates call for 25% growth, or 26.5% adjusted for currency.
Overall, the Street sees June quarter sales of $55.5 billion, up 7%, with profits of $2.55 a share, up from $2.23 a share a year ago.
Microsoft’s practice is to provide guidance for each of its three reporting segments. For the quarter, the company has projected revenue from its Intelligent Cloud segment, which includes Azure, of $23.6 billion to $23.9 billion, up 15% to 16%. For Productivity and Business Processes, which includes Office, the company projects $17.0 billion to $18.2 billion, which implies growth of 6% to 10%. For More Personal Computing, which includes Windows, Xbox and Bing, among other things, the company’s forecast was for $13.35 billion to $13.75 billion, down 4% to 7%, amid weak personal computer sales.
Raymond James analyst Andrew Marok on Monday repeated his Outperform rating on Microsoft shares, lifting his target price to $400, from $320. “Sentiment has been definitively positive on Microsoft with AI dominating conversations around tech and MSFT enjoying an enviable position at the vanguard of the new technology,” he writes in a research note. Marok thinks investors want to see no more than a modest deceleration in Azure growth, with encouraging commentary on the cloud outlook for fiscal 2024, and some quantification of the AI outlook.
Marok asserts that the company is “best-positioned to capitalize on the long-term tailwinds that AI should bring to the tech space.”
Wedbush analyst Dan Ives likewise remains bullish on the stock headed into earnings, with an Outperform rating and $375 target price. And he thinks the report has implications well beyond Microsoft’s own shares. “The entire Street will be laser-focused on one print this week: Microsoft,” he writes “While this is a massive week for Big Tech earnings season, there is no better barometer of the overall cloud and enterprise spending environment then Redmond and all eyes will be glued to the screens Tuesday after the bell.”
Ives is upbeat about the quarter. “We expect a cloud beat for the June quarter along with generally optimistic commentary out of Microsoft towards cloud and AI spend and some cookie-cutter caution on the choppy and unpredictable macro,” he writes. Ives thinks growth at Azure could be 2 or 3 percentage points better than Street consensus.
For the September quarter, Street consensus calls for sales of $55 million, including $18.1 billion from Productivity and Business Processes, $23.5 billion from Intelligent Cloud and $13.2 billion from More Personal Computing. Street estimates call for profits in the quarter of $2.61 a share.
Write to Eric J. Savitz at [email protected]
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