Why Microsoft's Results Are Reminder 'Cloud Software Eating the World' Mantra Has Further Legs

Software giant Microsoft Corporation MSFT reported late Tuesday forecast-beating results for its fiscal-year third quarter, and the stock reacted with a move to the upside.

The Microsoft Analyst: Piper Sandler analyst Brent Bracelin reiterated an Overweight rating and $352 price target for Microsoft shares.

The Microsoft Thesis: Microsoft's Cloud segment climbed 32% year-over-year to $23 billion in the March quarter, defying the fluid and dynamic economic conditions, analyst Bracelin said in a note. Azure, the company's public cloud computing platform, saw revenue growth accelerating from 46% in the previous quarter to 49%, the analyst noted.

Azure's adoption and consumption, the analyst said, remained strong in the quarter.

The Microsoft management noted that the number of Azure deals valued at over $100 million more than doubled from a year ago.

The analyst estimates that Azure now makes up 23% of the total revenue on an annualized run rate as opposed to a mere 7% in 2018.

"Bear concerns that all cloud software witnessed a temporary benefit post-COVID but could face a sharp moderation this year proved to be too pessimistic," Bracelin said.

The analyst noted that the broader Cloud group has shed a whopping 41% since November, with their valuation at a four-year low. If other cloud leaders report similar resiliency, it could mean near-term cloud risks are overstated.

Microsoft chief Satya Nadella said on the call that technology spending as a percent of enterprise revenue could double by the end of the decade, Bracelin noted.

All these suggest "cloud software eating the world' mantra might still have legs."

Microsoft Price Action: Microsoft shared climbed 4.51% to $282.40 in premarket trading on Tuesday, according to BenzingaPro data

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