Tuesday saw Microsoft (NASDAQ:MSFT) putting any doubts about Cloud growth to rest with a strong fiscal first-quarter (September quarter) report that exceeded all expectations.
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Specifically, the tech giant delivered revenues of $56.5 billion, amounting to a 12.8% year-over-year increase while coming in ahead of the Street’s call by $1.95 billion. At the other end of the spectrum, EPS of $2.99 comfortably beat the Street’s $2.65 estimate.
Productivity and Business Processes revenue reached $18.59 billion, thereby easily trumping both the consensus estimate of $18.19 billion and Microsoft’s guided range of $18 billion to $18.30 billion. Importantly, the Intelligent Cloud segment delivered revenue of $24.26 billion, a 19% year-over-year uptick and outpacing the $23.49 billion the analysts were looking for.
Tucked inside that segment, Azure revenue climbed by 29%, above the 26% expected on Wall Street. In constant currency (cc), that amounted to a 28% jump, representing an acceleration on the 27% notched in the prior quarter and ahead of the Street’s forecast of 25-26% growth.
Looking ahead, Microsoft expects fiscal second-quarter revenue to hit the range between $60.4 billion to $61.4 billion, in line with analyst expectations.
Investors reacted favorably to the report, driving shares up by 3% during Wednesday’s trading session. Evercore’s Kirk Materne attributes this response to the accelerated growth of Azure, and he anticipates that this growth trend will persist.
“While the focus now shifts to the drivers behind these results, including whether or not we are past the Azure ‘bottom’ or whether there were one-time items that resulted in the beat, we believe that the narrative gets even stronger into the rest of FY24 as some optical headwinds reverse and comps soften, and Microsoft’s position in the enterprise market continues to get stronger as customers look to consolidate spending,” the 5-star analyst wrote. “As we look out into CY24, we believe that AI will be a tailwind as Microsoft starts implementing its M365 Copilot monetization strategy, as will continued traction in Azure and the integration of ATVI into Microsoft’s gaming business.”
All told, Materne rates MSFT shares an Outperform (i.e., Buy) along with a $400 price target, indicating shares will post growth of 17% over the coming year. (To watch Materne’s track record, click here)
Materne is certainly no outlier here. 31 other analysts join him in the bull camp, while the addition of 4 Holds can’t detract from a Strong Buy consensus rating. The $401.33 average target is almost in line with Materne’s objective and set to generate one-year returns of ~18%. (See Microsoft stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
