Microsoft Now Even Further Ahead Of The Pack, Thanks To The Cloud

• Shares of Microsoft Corporation MSFT have appreciated 14.82 percent over the past six months, after having dipped almost to their 52-week low on August 25.
• Morgan Stanley’s Keith Weiss has maintained an Overweight rating on the company, with a price target of $66.
• Weiss stated that the company has once again distanced itself from its large cap tech peers with its strong Q2 results.

Analyst Keith Weiss said, “Uneven macro, stronger dollar and slumping PC markets aren't enough to derail the positive momentum of the Microsoft Cloud story.”

Microsoft’s Q2 results were characterized by robust commercial revenue growth, improvement in segment gross margins and solid opex control, which drove EPS growth of 12 percent during the quarter.

Related Link: Microsoft Beats The Street, Breaking Expectations For EPS And Revenue

Saying that this EPS growth was likely to be durable, Weiss mentioned that the company beat revenue and earnings expectations, while posting its gross and operating margins ahead of the consensus.

According to the Morgan Stanley report, “While management did cite a more challenging macro environment, they believe strong competitive positioning in core markets should sustain the growth trends seen in recent quarters.”

Despite the Q3 guidance being below consensus, Weiss believes that the lower FY16 opex guidance and strength of the Q2 earnings would sustain the FY16 EPS expectations at least at the current levels.

Although a “key concern amongst investors remains the potential for a more disruptive cloud transition, where growth in Azure increasingly cannibalizes the higher margin on-premises Server & Tools business,” Weiss mentioned that Microsoft is “driving more value from customers through the cloud transition.”

Shares were up about 5 percent in the premarket.