5 Microsoft Analysts On Q2 Earnings Beat, Slowing Azure Cloud Growth: 'Growth Is Likely Bottoming In Q3'

Microsoft Corp (NASDAQ: MSFT) shares tumbled on Wednesday morning after the company disappointed Wall Street with its quarterly guidance.

Microsoft reported fiscal second-quarter adjusted EPS of $2.32, beating consensus analyst estimates of $2.29. Revenue of $52.75 billion missed consensus analyst estimates of $52.94 billion. Revenue was up 2% from a year ago.

Microsoft's 2% revenue growth was its slowest in any quarter since 2016. Revenue from Azure and other cloud services was up 31% from a year ago, down from 35% in the previous quarter and roughly in-line with analyst expectations.

The company also reported a $1.2-billion charge related to its recent decision to lay off 10,000 workers, restructure its hardware portfolio and consolidate leases.

Looking ahead, Microsoft guided for fiscal third-quarter revenue of between $50.5 billion and $51.5 billion, missing analyst projections of $52 billion.

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Buying Opportunity? Morgan Stanley analyst Keith Weiss said Microsoft's recent cyclical slowdown in Azure growth creates an attractive long-term entry point for investors.

"Easing compares, price increases, waning FX headwinds and decelerating opex all work to accelerate EPS growth to double digits by Q4, which should bring investors back to MSFT," Weiss wrote.

Bank of America analyst Brad Sills said Microsoft's headwinds are driven by the difficult macroeconomic environment and are likely only temporary.

"With easier comparisons for Windows PCs, conservative Azure guidance and sustained high teens 0365 rev growth cc, we believe growth is likely bottoming in Q3," Sills wrote.

Raymond James analyst Andrew Marok said Microsoft's second quarter numbers were better than feared, but guidance on Azure and the More Personal Computing segment was soft.

"We still see a positive dynamic for Microsoft in terms of fundamental positioning, consolidating IT spend, and long-term cloud growth, but this quarter’s guide likely means that the debates around growth trends entering the report will remain outstanding," Marok wrote.

BMO Capital Markets analyst Keith Bachman said ongoing uncertainty about Azure makes him cautious on Microsoft moving forward.

"We are not comfortable recommending the stock until we have more confidence in the glide path of Azure," Bachman wrote.

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AI Investments: Oppenheimer analyst Timothy Horan said artificial intelligence is Microsoft's next big growth investment.

"Long term, its investment in OpenAI and the viral success of ChatGPT make MSFT an early leader for the AI Age," Horan wrote.

Piper Sandler analyst Brent Bracelin said Microsoft's AI investments have long-term potential, but the technology is still in the early innings.

"We applaud MSFT for being an early and aggressive participant in 'Generative AI' via the multi-year investment into OpenAI but also acknowledge material revenue implications given the sheer scale of Microsoft at $200B+ revenue could likely be measured in years, not months," Bracelin wrote.

MSFT Ratings, Price Targets:

• Morgan Stanley has an Overweight rating and $307 target.
• Bank of America has a Buy rating and $300 target.
• Oppenheimer has an Outperform rating and $265 target.
• Raymond James has an Outperform rating and lowered the price target from $280 to $270. 
• BMO Capital Markets downgraded the stock from Outperform to Market Perform rating and lowered the price target from $267 to $265.
• Piper Sandler has an Overweight rating and $247 target.

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