Opinion: Wall Street Emphasizes the Importance of AI in Microsoft and Alphabet Results
Amidst a turbulent economic environment for the software industry, Microsoft Corp. continues to thrive and demonstrate its strength.
Analyst Mark Moerdler from Bernstein found Microsoft’s plans for sequential increases in capital expenditures throughout fiscal 2024 encouraging. This suggests that Alphabet’s management has promising insights into future revenue growth in the cloud sector.
Moerdler further points out that Microsoft’s advancements in AI have positioned the company to surpass Google, making Azure a potentially dominant hyperscale provider, even surpassing Amazon.com Inc.’s cloud-computing business. He notes that the momentum of AI could become a significant driver for Azure’s long-term revenue, warranting a re-evaluation of its potential size.
Additionally, Moerdler praises Microsoft’s diverse business operations, stating: “Microsoft is such a strong company to own because it has multiple legs to stand on.” Despite challenges faced by other companies in terms of reduced consumption rates, Microsoft has successfully fueled growth in its Cloud and AI segments. Moerdler maintains an outperform rating and raises his price target to $406 from $400.
As a result of these positive insights, Microsoft’s shares experienced a 4% increase in premarket trading on Wednesday.
Analysts had been eagerly anticipating signs of improvement in Microsoft’s cloud business, and the recent results indicate to Kirk Materne from Evercore ISI that the “traditional” consumption-focused operations are stabilizing.
Moreover, Microsoft shared its outlook on cloud trends for the second half of the fiscal year, even though it is only in its second quarter. Materne views this as a positive sign, indicating that Microsoft is currently on stronger ground compared to six to twelve months ago.
Overall, Microsoft’s resilience in the face of industry challenges, coupled with its focus on AI and diversified business operations, positions it as a reliable and robust player in the software market.
Azure Growth Finds ‘New Normal’ as Microsoft Expands Opportunities
Introduction
In a recent analysis, industry experts weighed in on Microsoft’s Azure growth and the potential impact of upcoming developments. While opinions varied, the consensus was that Azure’s performance was solidifying, setting the stage for further growth in the coming year.
Jefferies’ Brent Thill: First Showers of CY24 AI Storm
Brent Thill of Jefferies began his note to clients with an intriguing title: “First Showers of CY24 AI Storm.” Thill acknowledged that while Azure faced some optimization challenges, the company’s focus on AI and its commentary on industry trends suggested promising double-digit organic revenue growth. Thill reiterated his confidence in Microsoft, rating the company as a strong buy with a target price of $400.
Guggenheim’s John DiFucci: A Measured Stance
John DiFucci of Guggenheim took a more cautious approach in his assessment. Recognizing that his perspective differed from the prevailing market view, DiFucci acknowledged the value of AI but questioned the timing and magnitude of its monetization benefits for Microsoft. He highlighted Microsoft’s dominance in productivity suite software as a potential advantage but remained uncertain about the specific impact of M365 Copilot. Despite his reservations, DiFucci maintained a neutral rating on Microsoft’s stock.
Conclusion
While opinions varied among experts, it is clear that Microsoft’s Azure growth is gaining momentum. With the imminent release of M365 Copilot and the expanding opportunities in the gaming market through Activision, Microsoft’s path to success appears robust. Investors should closely monitor these developments as they have the potential to shape Microsoft’s performance in the coming year.
