Microsoft Corporation shares rallied out of the gate Wednesday following the release of its quarterly results.
Microsoft Analysts
Stifel analyst Brad Reback maintained a Buy rating and increased the price target from $325 to $380.
Bank of America (BofA) Securities Brad Sills reiterated a Buy rating and hiked the price target from $340 to $365.
Wedbush analyst Daniel Ives maintained an Outperform rating and $375 price target, with the bull case price target at $415.
Piper Sandler analyst Brent Bracelin maintained an Overweight rating and lifted the price target from $310 to $352.
Rosenblatt Securities Blair Abernethy maintained a Buy rating and $349 price target.
Credit Suisse analyst Stephen Ju maintained an Outperform rating and raised the price target from $320 to $340 price target.
Microsoft Theses
Microsoft’s Broad-Based Strength Appears Sustainable, Stifel Says
Microsoft reported another strong quarter, topping estimates across the board, with Commercial Cloud outperforming and Windows also exceeding expectations, Stifel analyst Reback said.
The Windows 11 release, the analyst said, generated healthy average revenue per user gains.
The broad-based strength appears sustainable as businesses of all sizes embrace the company’s growing suite of infrastructure, productivity, and security solutions, the analyst said.
The expanding product set, coupled with growing domain expertise and deeper, more strategic, customer partnerships is enabling Microsoft to take meaningful amounts of market share from legacy enterprise vendors, he added.
“Net/net, the ever-growing backlog of digital transformation opportunities positions MSFT well to post better than expected top-line growth and, when combined with operational discipline, should enable operating income and cash flow to grow faster than revenue in coming years,” Stifel said.
Microsoft Is Seeing Continued Momentum In Cloud Franchises, BofA Says
Microsoft’s first-quarter results point to continued momentum in the two key cloud franchises, BofA analyst Sills said.
Azure growth accelerated two percentage points in constant currency to 48 percent, with continued momentum in mission-critical workloads moving onto the platform, the analyst said. New industry cloud offerings are likely to add incremental growth from here, he added.
Continued ramp in cloud gross margin is also encouraging, the analyst said.
The server annuity business benefitted from revenue recognition/mix, Sills said. Steady normalized low-single-digit growth for server and windows demonstrated Microsoft’s ability to capture incremental growth in cloud, though not at the expense of these large, profitable legacy businesses, he said.
Microsoft Shares Poised For Much Higher Gains Into 2022, Wedbush Says
Microsoft handily beat Azure estimates by 300 basis points, with 50 percent cloud growth, and gave December guidance well above expectations, Wedbush analyst Ives said. This speaks to a “cloud party” that is still in the middle innings of playing out for Microsoft, he added.
“We believe the strong numbers from Nadella & Co. is a broader indication of strength we expect to see across the enterprise cloud software landscape throughout this earnings season,” Ives said.
These results and stronger guidance, the analyst said, will be enough to move the stock much higher into 2022.
Cloud Revenue Will Likely Scale Above $100 Billion Annualized Run-Rate, Piper Sandler Says
Growth at scale was on display with quarterly revenue for Microsoft Cloud surpassing $20 billion for the first time on 36 percent reported cloud growth, Piper Sandler analyst Bracelin said.
The cloud model shift at Microsoft contributed to the highest quarterly growth rate in seven years, and improving cloud economies of scale have also contributed to operating margin expansion to 44.7 percent, the highest margin in over a decade, the analyst said.
The analyst now forecasts Microsoft Cloud revenue scaling above a $100 billion annualized run-rate within the next three quarters.
Credit Suisse Bullish on Microsoft
Credit Suisse’s bullish thesis on Microsoft is premised on the company being one of the likely hybrid cloud winners, given the broad portfolio of on-prem server products, public cloud, and SaaS applications, rising Azure profitability and continued success of O365, analyst Ju said.
Price Action
Microsoft shares were up 4.21 percent to $323.17 at market close Wednesday.
By Shanthi Rexaline
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