Wedbush: Microsoft earnings to reveal big cloud, AI momentum

Microsoft is set to announce its fiscal Q4 2024 financial results on July 30, after the market close, a report that will be closely watched by the market for insights into AI adoption rates.

Wedbush analysts maintained an Outperform rating on Microsoft Corporation (NASDAQ:MSFT) stock ahead of the release, keeping it on their Best Ideas List.

"Our checks for Microsoft have been robust this quarter again as we believe the AI tidal wave with Redmond in the driver's seat is accelerating cloud deal flow for Azure with strong momentum into the rest of 2024/2025,” they said in a note.

The investment firm expects a strong performance for the June quarter, with Microsoft projected to surpass the consensus estimates of $64.37 billion in revenue and $2.93 in earnings per share (EPS).

Wedbush believes that the Intelligent Cloud is likely to be a key area of upside. The most critical metric will be Azure growth, with the Street's target set at 30%, a figure analysts think Microsoft can exceed given the high level of deal activity from its core enterprise customers.

“We strongly view this as Microsoft's "iPhone Moment" with AI set to change the cloud growth trajectory in Redmond the next few years and recent checks giving further confidence in this dynamic,” analysts noted.

Their research indicates that over the next three years, more than 70% of Microsoft's installed base will adopt AI-driven functionality, fundamentally altering the landscape for the company.

Analysts believe the stock has yet to fully reflect the anticipated wave of cloud and AI growth, as enterprise AI use cases are expected to drive more budget allocations toward AI in 2024/2025. Citing their partner checks around Copilot deployments, Wedbush notes that this could add an additional $25 billion to Microsoft's top line by the fiscal year 2025 (FY25).

Furthermore, the firm estimates that for every $100 spent on Azure cloud services in recent years, there will be an additional $40 allocated to AI spending moving forward.

Wedbush's thesis remains that the cloud, along with the Office 365/Windows ecosystem, will constitute a larger portion of Microsoft's revenue, driving accelerated growth and margins into FY25.