What Wall Street Is Saying About Microsoft Ahead Of Earnings

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Microsoft (MSFT) is scheduled to report results of the second quarter of its fiscal year 2024 after the market close on Tuesday, January 30, with a conference call scheduled for 5:30 pm ET. What to watch for:


CLOUD: In its fiscal first quarter, the company reported Microsoft Cloud revenue of $31.8B, including Q1 Intelligent Cloud revenue of $24.26B.

Satya Nadella, chairman and CEO of Microsoft, said: "With copilots, we are making the age of AI real for people and businesses everywhere. We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers."

On the day after the company's last report, HSBC upgraded Microsoft to Buy from Hold with a price target of $413, up from $347. The analyst sees an improved outlook following the company's stronger than expected fiscal Q1 results. Microsoft's artificial intelligence exposure is broad and should be a catalyst across its large product portfolio, driving growth and margin expansion, the analyst told investors.

Meanwhile, Wedbush said Microsoft "delivered a much needed quarter for the bulls," featuring top and bottom-line beats driven by 29% Azure growth, which came in above Street expectation of 26%, as the company saw heightened demand across its entire product portfolio with the infusion of AI across its tech stack. While Wedbush said at the time that it believed Microsoft is still in the early innings of a major opportunity with AI and the cloud space of reaching 50% of its global install base over the next 3 years, it called the quarter "a major positive for the company as its clearly on its way to grabbing a large portion of this market." The firm has an Outperform rating on the shares.

More recently, Wedbush analyst Dan Ives said he believes Microsoft "will be the most important earnings report and conference call" all of this earnings season regardless of sector, with Apple (AAPL) being second, as the success of the launch of Copilot and early adoption of AI "will have all the eyes of the Street globally tuned in with popcorn in hand." The two torchbearers of the AI Revolution are the "Godfather of AI Jensen" and Nvidia (NVDA) with Microsoft the foundational cloud starter for AI use cases around the world that are now exploding. Microsoft's earnings Tuesday after the bell will be a key barometer for the pace of AI spending, Wedbush says. The firm's checks for Microsoft have been robust this quarter as it believes "the AI tidal wave with Redmond in the driver's seat is accelerating cloud deal flow for Azure" with strong momentum into the rest of 2024. Wedbush would expect a solid beat for the December quarter, with the company likely exceeding the Street's top-line revenue and EPS estimates, added the firm, which has an Outperform rating and $450 price target on the shares.


EXPECTATIONS: Current consensus EPS and revenue forecasts for Microsoft's December-end quarter stand at $2.78 and $61.14B, respectively, according to Bloomberg data.


OPENAI DRAMA: In late November, five days after the board fired him, Sam Altman returned as CEO of OpenAI, The Wall Street Journal's Deepa Seetharaman reported. OpenAI's biggest investor is Microsoft.

After OpenAI announced that they had come to terms with Altman to return as CEO and that it was revamping the board in conjunction with this move, BofA said that on one hand, Microsoft would be losing the benefit of hiring Altman and President Greg Brockman, but that on the other hand, Microsoft would benefit from stability associated with these executives returning to Microsoft's key partner and putting OpenAI back on track. While Microsoft would have had the potential to accelerate development of its own AI technologies under Altman's leadership had he been hired, "a healthy and growing OpenAI is more important to Microsoft today," said the analyst, who kept a Buy rating on Microsoft shares.

Similarly, RBC Capital said that the return of Sam Altman and Greg Brockman to OpenAI, along with changes to the OpenAI board, left the company in a similar-to-better position relative to a week prior to those events. Microsoft is expected to be more involved going forward, the analyst added in a note to investors at that time.

Wells Fargo also called Sam Altman's return to OpenAI as CEO a "clear positive outcome" for Microsoft after prolonged back and forth discussions, as the firm said this outcome likely dodged the threat of a mass exodus of employees from OpenAI to Microsoft and kept relative continuity at OpenAI from a product and personnel perspective.

PASSING APPLE IN MARKET CAP: In mid-January, Microsoft surpassed Apple as the world's most valuable company after the iPhone maker had its worst start in years amid mounting demand concerns. As of the time of this writing, Microsoft's market capitalization was hovering near $3.05T, while Apple's market capitalization stands near $2.92T, according to data from Yahoo Finance.


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