AI-driven Demand Propels Microsoft's Azure Growth, Analysts Bullish on Stock

Raymond James's Andrew Marok raised their price target on Microsoft (NASDAQ: MSFT) by 6.7% from $450 to $480 on 2024/04/26. The analyst reiterated their Buy rating on the stock.

Marok's price target increase comes after Microsoft reported solid quarterly results for Q3 2024. The company's earnings beat expectations, driven by strong growth in its Azure cloud platform and AI-driven demand.

According to Marok, the continuing AI-driven demand accounted for 7% of the growth in the quarter and was a key catalyst for Azure's impressive 31% year-over-year growth. This growth significantly outperformed estimates and is expected to continue benefiting from Microsoft's investment plan and the opportunities it opens up for additional market share growth across multiple businesses.

For Q3 2024, Microsoft reported earnings per share (EPS) of $2.94, beating the Zacks Consensus Estimate by 4.63% and showing a 20% increase compared to Q3 2023. The company also reported revenue of $61.86 billion, surpassing the Zacks Consensus Estimate by 2% and demonstrating a 17% increase compared to the same quarter last year.

Breaking down the revenue by segments, Microsoft's Productivity & Business Processes segment saw a 12% year-over-year increase in revenue, reaching $19.6 billion. The Intelligent Cloud segment reported revenue of $26.7 billion, showing a 21% year-over-year growth. The More Personal Computing segment generated $15.6 billion in revenue, representing a 17% year-over-year increase. Overall, Microsoft's operating income for the quarter was $27.6 billion, up 23% compared to the previous year.

Looking ahead, Microsoft's management provided guidance for Q4 2024, expecting continued growth across its segments. The Productivity & Business Processes segment is projected to have revenue in the range of $19.9 billion to $20.2 billion, the Intelligent Cloud segment between $28.4 billion and $28.7 billion, and the More Personal Computing segment between $15.2 billion and $15.6 billion. Additionally, the company aims for double-digit revenue and operating income growth for the full fiscal year 2025.

Chairman and CEO Satya Nadella highlighted the impact of Microsoft Copilot and the Copilot stack in driving AI transformation and improving business outcomes across various industries and roles. Meanwhile, Executive VP and CFO Amy Hood attributed Microsoft's strong cloud revenue, which reached $35.1 billion and grew 23% year-over-year, to the exceptional execution by the sales teams and partners.

In addition to Marok's rating and price target update, several other analysts also revised their ratings for Microsoft on April 26, 2024. Bernstein's Mark Moerdler increased the price target by 5.2% from $465 to $489 while maintaining a Buy rating on the stock. Goldman Sachs's Kash Rangan raised the price target by 14.4% from $450 to $515 and maintained a Strong Buy rating. JP Morgan's Mark Murphy increased the price target by 6.8% from $440 to $470 and also maintained a Strong Buy rating.

It is worth noting that all of the top-rated analysts currently rate Microsoft as a Strong Buy or Buy, with no analysts recommending a Hold or Sell rating.

The consensus among analysts is that Microsoft's upcoming fiscal year will deliver earnings per share (EPS) of $12.67, indicating a 9.3% year-over-year increase. The stock price has responded positively to the company's latest quarterly report, rising 1.8% since April 25, 2024. On a year-over-year basis, Microsoft's stock has surged by 37.6%, outpacing the 25.7% increase in the S&P 500 index during the same period.

In terms of analyst performance, Andrew Marok of Raymond James is ranked in the top 27% out of 4,566 Wall Street analysts by WallStreetZen. Marok specializes in the Communication Services and Technology sectors and has an average return of 2.2% with a 41.5% win rate.

Microsoft Corporation, headquartered in Redmond, Washington, is a global technology company that develops, licenses, and supports software, services, devices, and solutions. The company operates in three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Microsoft's offerings include popular products such as Office, Exchange, SharePoint, Microsoft Teams, Skype, Outlook.com, OneDrive, Dynamics 365, Azure, and Surface devices.

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