Microsoft Enjoys 'First-Mover Advantage' As AI Revenue Doubles, 5 Analysts Explore Q2 Print

Shares of Microsoft Corp MSFT came under pressure early trading on Wednesday, even after the company reported higher-than-expected quarterly results.

The results came amid an exciting earnings season. Here are some key analyst takeaways from the release.

• BMO Capital Markets analyst Keith Bachman maintained an Outperform rating, while raising the price target from $420 to $455.
• RBC Capital Markets analyst Rishi Jaluria reiterated an Outperform rating, while lifting the price target from $415 to $450.
• Piper Sandler analyst Brent Bracelin reaffirmed an Overweight rating and price target of $455.
• Truist Securities analyst Joel Fishbein maintained a Buy rating and price target of $600.
• William Blair analyst Jason Ader reiterated an Outperform rating on the stock.

Check out other analyst stock ratings.

BMO Capital Markets: Microsoft delivered another “solid” quarter, highlighted by Azure growth of 28% year-on-year in constant currency terms, “including 6 points from AI workload,” Bachman said in a note. “We view the 1-2 points of upside in the FY24 margin guide vs. the previous flat guide as the most meaningful positive surprise,” he added.

“Consistent with our preview, we think it will take some time for the benefits of Copilot to show up in Office/Windows growth,” the analyst further stated.

RBC Capital Markets: Microsoft’s quarterly results reflected “balanced upside to revenue and margins,” Jaluria said. “By our math, Azure AI is now $3.3B+ in annualized run-rate revenue, more than doubling sequentially,” he added.

“In terms of what drove the spike, Microsoft pointed to Azure OpenAI Service and GitHub Copilot (paid subs grew 80%+ sequentially to 1.3M),” the analyst further wrote.
Piper Sandler: The latest results “reinforced Microsoft's first-mover advantage in AI applications with AI-related revenue doubling q/q to an estimated $1.1B or $4.4B annualized run-rate,” Bracelin wrote in a note.

Although AI is merely 1.8% of the company’s revenues, it is in “the early stages of helping accelerate top-line y/y organic growth to 14% (excluding Activision) vs. 13% last quarter,” the analyst said. “Despite elevated AI data center investments, we are pleased to see further margin expansion this year,” he added.

Truist Securities: Microsoft reported its second-quarter results “with upside to our expectations across all three of their major product categories,” Fishbein said.

“As CY24 rolls on, we expect that strong growth in the segment will continue to drive upside to current expectations,” the analyst wrote. He added that the guidance appears conservative for the back half of the year, “as we anticipate that AI projects will continue increasing in impact through the year in their customer base.”

William Blair: “Microsoft reported revenue growth of 16% in constant currency (with a two-percentage-point benefit from FX), roughly $900 million ahead of consensus,” Ader wrote in a note.

“Microsoft Cloud growth of 22% highlighted the sustained momentum of the company’s commercial business, driven by strength in M365 and Azure,” the analyst added.

MSFT Price Action: Shares of Microsoft had declined by 1.26% to $403.46 at the time of publication on Thursday.

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