Microsoft Corp.’s steady outperformance in an earnings report again won near-universal praise from analysts Wednesday, helping send Microsoft’s stock toward its biggest daily gain in more than two years.
Shares of Microsoft
were up 6.6% in Wednesday afternoon trading, after the company beat earnings expectations for the latest quarter and delivered an upbeat forecast Tuesday afternoon. Though the company expects to see negative impacts from COVID-related lockdowns and the conflict in Ukraine, it’s also experiencing continued strength in its Office and cloud businesses.
The stock was on track for its largest single-day percentage gain since April 6, 2020, when it rose 7.4%.
“Not the blowout quarter we have seen in the past but a solid quarter especially once one considers all the macro headwinds that are now impacting not just software,” wrote Bernstein analyst Mark Moerdler, who commented that management appeared confident in the business after delivering “broad-based” strength in “almost every” area.
“We suspect as earnings season progresses, Microsoft’s quarter will stand out even more,” he continued. Moerdler has an outperform rating on the stock and boosted his target price slightly, to $367 from $365.
Wolfe Research’s Alex Zukin also cheered the “absolute resolute confidence” from Microsoft executives in a forecast that showed expectations the company would be able to maintain its momentum.
“There was no hedging around macro headwinds, pipeline activity, close rates or any other issue with the biggest positive surprise coming from 4Q guidance for Azure [constant currency] growth of 47%,” he wrote. Zukin kept his outperform rating on the stock and increased his price target to $350 from $330.
“With Microsoft reaffirming its conviction for durable double-digit top- & bottom-line durable growth trends beyond next quarter, investors can continue to look at name as a safe port in the storm,” Zukin continued.
William Blair’s Jason Ader also saw Azure as a high point, pinpointing that its 49% constant-currency growth during the latest period was its best rate in seven quarters. Additionally, while Microsoft has made progress driving upgrades to its “premium” Office 365 E5 plan, Ader noted that only a fraction of customers have chosen this tier, giving Microsoft room for “material” expansion in average revenue per user as it convinces other customers to move over.
“Given Microsoft’s sustainable competitive advantages in the cloud, product breadth, stellar financial profile, and expanding enterprise wallet share, we continue to see the stock as a must-own name for tech investors,” he wrote, while maintaining an outperform rating on the shares.
While Evercore ISI’s Kirk Materne acknowledged that Microsoft’s latest quarter contained “additional moving parts” due to foreign-exchange impacts and its acquisition of Nuance, he suggested that the company’s story continues to be attractive. Materne likes Microsoft’s “durable business model,” something he said the company doesn’t get enough credit for from Wall Street.
“In the near-term, we acknowledge that Microsoft could remain at the mercy of the market and today’s gains could be faded if other megacap names fail to deliver,” he wrote. “However, whenever the macro clouds part we believe Microsoft is going to be a name that investors will gravitate back to as it is well positioned to deliver steady double-digit top- and bottom-line growth over the next few years given its growing annuity businesses in the enterprise (Azure/O365).”
Materne further noted that “outside of a few idiosyncratic ideas, it’s been a tough CY22 for software,” though he said that the company’s “results and guidance are a helpful reminder that the secular trends powering cloud demand and digitization remain intact.”
He rates the stock at outperform with a $330 price target, below his prior target of $370.
Microsoft stock had declined nearly 20% so far this year before Wednesday’s gains, which put shares more in line with broader performance. As of 3 p.m. Wednesday, Microsoft had declined 15.1% on the year, while the S&P 500 index
had dropped 12.4%.