Microsoft gains as strong results outweigh cautious guidance; analysts remain very bullish

Investing.com - Microsoft (NASDAQ:MSFT) reported fiscal first-quarter results that beat Wall Street estimates, driven by stronger growth in its cloud business Azure.

Microsoft Corporation rose nearly 4% in pre-open Wednesday trade following the report.

The company announced earnings per share of $2.99 on revenue of $56.52B. Analysts polled by Investing.com anticipated EPS of $2.65 on revenue of $54.53 billion.

Revenue in productivity and business processes was up 13% to $18.6B and its intelligent cloud business, which includes cloud business Azure, grew 19% to $24.3B.

The company said Azure grew 29% in the quarter, compared with Wall Street estimates for 26%.

While shares rose over 6% after the Q3 report was out, the stock gave back a portion of these gains in pre-market after CFO Amy Hood said Q2 revenue should be around $60.9B (up or down $500M), which is only in line with the guidance.

Microsoft's investments in AI -- including the $10B bet on OpenAI, which created the popular AI tool ChatGPT -- are expected to continue to drive growth.

"We believe that over 50% of the MSFT installed base will ultimately use the AI functionality for the enterprise/commercial landscape which represents a major monetization opportunity and we are now seeing this play out as we head into year-end," Wedbush said in a note Tuesday following the quarterly results.

Revenue in personal computing was up 3% to $13.7B.

This was a "very strong performance [from Microsoft] given the macro headwinds as more enterprises move to the cloud while the company rapidly infuses AI across the entire tech stack," Wedbush added.

Citi analysts said the report "checked all the boxes."

"We believe the stronger beat in Q1 and acceleration in leading indicators (commercial bookings) and consumption revenue (Azure) suggest demand trends are stabilizing (or accelerating) and should offer a positive read on the outlook."

Goldman Sachs analysts raised the target by $50 to $450 per share, citing Azure acceleration.

"With FY24 as an investment year, investors should expect to start seeing gross margin leverage in FY25, which should lead to acceleration in the company's earnings growth," analysts wrote.

Additional reporting by Senad Karaahmetovic