Microsoft achieved a significant milestone last week by surpassing the $3 trillion valuation mark, aligning itself with Apple as one of the few companies to achieve this remarkable feat.
The remarkable surge in Microsoft’s stock price, soaring by nearly 70% in the last year, is largely attributed to its aggressive integration of generative artificial intelligence software across its product spectrum.
Investors eagerly await Microsoft’s earnings report following the closing bell on Tuesday, anticipating fresh insights into the company’s recent advancements.
Analysts, as per FactSet data, anticipate a 15.7% year-over-year revenue growth to \(61 billion, with earnings per share expected to rise to \)2.76 from $2.32 in the previous year.
Projections indicate robust double-digit growth across all three key business segments of the company.
In the Productivity and Business Processes division, encompassing Office and related services, revenue is forecasted to climb by 10.3% to \(18.7 billion. The Intelligent Cloud sector, including Azure, is expected to see a revenue surge of 17.5% to \)25.3 billion.
Moreover, the More Personal Computing segment, covering Windows, gaming, and Surface hardware, is poised for a revenue increase of 17.8% to $16.8 billion, partly attributed to the recent acquisition of Activision Blizzard.
Microsoft’s own forecast suggests a 26% to 27% growth rate for Azure in the quarter, attracting significant market attention.
Analysts are keen to hear updates on the performance of the Copilot software for Microsoft 365, priced at $30 per seat monthly, with potential revenue generation in the billions through this AI-driven companion application.
Of particular interest is the anticipated growth rate of Azure, with Citi analyst Tyler Radke speculating that Microsoft may surpass its Azure guidance by 1 or 2 percentage points. Radke also anticipates a favorable impact from enhanced PC demand and more favorable foreign exchange rates on the company’s results.
Looking ahead to the March quarter, consensus estimates project an overall revenue increase of 15.2% to \(60.9 billion, with earnings per share expected to rise to \)2.64 from $2.45 in the corresponding quarter last year.
This includes expected growth rates of 10.5% to \(19.4 billion for Productivity and Business Processes, 17.2% to \)25.9 billion for Intelligent Cloud, and 16.3% to $15.4 billion for More Personal Computing.
Piper Sandler analyst Brent Bracelin anticipates a potential shift in investor focus towards Microsoft’s cloud business. He suggests that Azure’s growth could accelerate back to the 29% to 30% range. Looking further ahead, Bracelin envisions Microsoft’s cloud business expanding to \(200 billion in three years, a substantial increase from \)51 billion in fiscal year 2020.
In conclusion, while acknowledging the promising prospects of Microsoft’s AI initiatives, particularly in cloud services, Bracelin emphasizes the pivotal role of cloud computing in propelling the company’s growth trajectory. He maintains an optimistic outlook on the stock, assigning it an Overweight rating with a price target of $455.
