Microsoft Corp. MSFT shares climbed over 8% in Tuesday's after-hours session after the company reported better-than-expected fiscal year third-quarter results and issued an in-line fourth-quarter revenue guidance.
The results wowed a couple of Microsoft bulls, and here's what the analysts think about the quarterly report:
The Microsoft Analysts: Piper Sandler analyst Brent Bracelin maintained an Overweight rating and hiked the price target from $290 to $348.
Wedbush analyst Daniel Ives maintained an Overweight rating and raised the price target from $315 to $325.
The Microsoft Thesis:
Q3 Not Dark At All, Piper Sandler Says: While the Street was bracing for macro headwinds to pressure top-line growth rates to the lowest in six years, Microsoft reported top- and bottom-line beat in its fiscal year third quarter, Piper Sandler analyst Bracelin said. "'Darkest before the dawn' moment for MSFT turned out to be not that dark at all," he said.
The resilience of growth and profit model despite macro headwinds, along with astounding generative AI adoption metrics strengthens the bull-case to own MSFT as a core growth asset," the analyst said.
He noted that Azure OpenAI customer adoption increased 10 times since December to over 2,500. Customers now include Coursera, EPIC Systems, Mercedes-Benz, Shell, Shopify and Snap. GitHub Copilot for business has attracted over 10,000 organizational sign-ups, including Coca-Cola, GM, Duolingo and Mercado Libre, within three months of the formal launch, he added.
AI workloads, the analyst said, partially offset Azure optimization headwinds, Bracelin said. He noted that Azure's currency-adjusted growth moderated from 38% in the second quarter to 31%.
Going forward, the analyst expects potential gross margin contraction due to the mix shift to lower-margin Azure services and elevated AI investment costs. The company's commentary that operating expense growth will likely remain low in the next fiscal year was an encouraging sign, he said.
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Robust Performance, Says Wedbush: Microsoft turned in a robust performance despite the macro headwinds, as more enterprises continue to move to the cloud, said Wedbush's Ives in a note.
The "Productivity and Business Processes" and "Intelligent Cloud" businesses raked in revenue of $17.52 billion and $22.08 billion, both exceeding the company's guidance and the consensus, the analyst noted.
"The ‘star of the report’ and the focus of the Street was Azure revenue growth of 31% on a constant currency basis vs. the Street numbers of 27% and whisper number of 28%," Ives said.
Market share gains at the expense of Amazon, Inc.'s AMZN AWS and further penetration into the enterprise segment contributed to success in a choppy macro, the analyst said.
Microsoft Price Action: After settling Tuesday's session down 2.25% to $275.42, Microsoft shares jumped 8.51% to $298.86 in the after-hours session, according to Benzinga Pro data.
Read Next: If You Invested $1,000 In Microsoft At Its Early-November Lows, Here’s How Much You Would Have Now
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