Microsoft (NASDAQ: MSFT) delivered an impressive fiscal first-quarter report, surpassing Wall Street’s expectations, primarily fueled by robust growth in its cloud platform, Azure. The tech giant’s stock enjoyed a nearly 4% surge in pre-market trading on Wednesday, spurred by the positive results.
The company announced earnings per share of $2.99 on revenue amounting to $56.52 billion, beating analysts’ consensus estimates of $2.65 EPS and $54.53 billion in revenue.
Among the notable highlights, the revenue from productivity and business processes soared by 13% to reach $18.6 billion. The intelligent cloud business, encompassing Azure, witnessed a growth of 19%, recording $24.3 billion in revenue. Notably, Microsoft reported that Azure’s growth during the quarter reached 29%, surpassing Wall Street’s anticipated 26%.
However, despite the initial stock price surge of over 6% following the Q3 report, it gave back some of those gains during pre-market trading. This slight dip was attributed to the CFO, Amy Hood’s announcement that Q2 revenue was expected to be approximately $60.9 billion, with a margin of up to $500 million, aligning closely with the company’s guidance.
Microsoft’s continued investments in AI, such as the $10 billion bet on OpenAI, the creator of the popular AI tool ChatGPT, are projected to be significant drivers of future growth. Wedbush, in a statement released following the quarterly results, expressed optimism about the adoption of AI functionality across the enterprise and commercial landscape, anticipating that over 50% of the MSFT installed base will ultimately make use of these capabilities, marking a substantial monetization opportunity.
The personal computing segment also experienced a 3% increase in revenue, amounting to $13.7 billion. Wedbush commented on the company’s strong performance in the face of macroeconomic challenges as more enterprises migrate to the cloud while simultaneously infusing AI throughout their technological infrastructure.
Citi analysts described the report as “checking all the boxes” and indicated that the robust beat in Q1, coupled with the acceleration in leading indicators like commercial bookings and consumption revenue from Azure, signal stabilizing or even accelerating demand trends, providing a positive outlook.
Goldman Sachs analysts responded to the report by raising the target stock price by $50 to $450 per share, citing Azure’s acceleration as a driving force behind this decision. They also highlighted the expectation of gross margin leverage in FY25, following an investment year in FY24, which should accelerate the company’s earnings growth.
