© Reuters. Microsoft Azure’s meteoric growth, AI innovations point to bright future for investors, analysts say
Benzinga – by Anusuya Lahiri, Benzinga Editor.
Piper Sandler analyst Brent A. Bracelin maintained an overweight rating on Microsoft Corp. (NASDAQ:MSFT) with a price target of $455.
The analyst noted factors that could shift investor optimism toward Microsoft Cloud’s flagship segments in 2024.
Azure’s growth could accelerate slightly to 29-30% year-over-year, with a clear trajectory of revenue reaching $95 billion within two years.
ARPU expansion at O365 could support 15% to 18% growth for a product with revenue potential of more than $50 billion by fiscal 2025, Bracelin reported.
Read also: Major gaming shakeup at Microsoft: 1,900 layoffs and leadership changes in post-acquisition strategy
Over three years, the analyst noted that Microsoft Cloud revenue exceeded more than $200 billion with a CAGR of more than 22% (up from more than $51 billion in fiscal 2020). Easy non-cloud comparisons (46% of sales) could further accentuate the strong cloud fundamentals over the next two quarters, Bracelin noted. The analyst is excited by the promise of Microsoft’s AI advantage, but acknowledges that it remains small, at 1% of revenue, and notes that cloud is the underlying driver of the demand that fuels growth. Microsoft will release its quarterly results on January 30.
The analyst forecasts revenue and EPS of $61.16 billion and $2.75 for the second quarter.
Oppenheimer analyst Timothy Horan had an outperform rating on Microsoft with a $410 price target.
The analyst noted that this quarter is crucial for Microsoft and the technology sector, as it provides a first look at its forays as a one-stop shop for AI and progress in monetizing generative AI.
Horan noted that Copilot generates measurable gains for customers, which translates into strong demand, justifying higher prices.
Beyond productivity improvements, investors will focus on progress in customer adoption, ARPU growth, profitability and new Copilot applications, he said.
Microsoft has parlayed its early lead in this new wave of AI into a rarefied $3 trillion market cap.
It must continue to deliver innovative new products such as CoPilot, Arc, Maia, Phi-2, OneLake and Fabric, translating the promise of GAI into reality, Horan said.
The analyst forecasts revenue and EPS of $60.92 billion and $2.74 for the second quarter.
Price action: MSFT shares closed up 0.57% at $404.87 on Thursday.
Photo by Rainer Stropek via Flickr
Latest notes for MSFT
| February 2022 | Financial Tigress | Maintains | Buy | |
| January 2022 | Citi Group | Maintains | Buy | |
| January 2022 | Morgan Stanley | Maintains | Overweight |
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