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Jean-Luc Ichard
Microsoft (Nasdaq:MSFT) is scheduled to report second-quarter results next week, and Bank of America expects „solid“ results from Azure and Office, although big spending on artificial intelligence is still a long way off.
“After a series of phone calls, Partnerships with nearly a dozen key Microsoft partners result in healthy 1% upside to Q3 revenue estimates of $60.5 billion (+14.5% YoY, +14% YoY) , +11% YoY, excluding Activision). „This comes from the continued strength of Azure and M365,“ analyst Brad Sills wrote in a note to investors.
Sills reiterated his Buy rating and $480 price target on Microsoft.
Analyst consensus expect Microsoft earned $2.84 per share on revenue of $60.85 billion.
deep blue strength
Microsoft doesn't release Azure-specific revenue, but it does show growth rates.in most cases recent quarterAzure revenue increased 30% or 28% excluding currency effects.
Sills expects much the same thing to happen, partially with the help of AI.
„Given positive feedback from system integrator partners, the relative strength of the Microsoft security stack, and increased usage, suggesting a stable and healthy migration of new workloads to cloud platforms, Azure's growth rate „We expect 1% upside to our forecast of 28% (at constant currency) to help integrate Azure AI with data services such as Open AI Services, Azure AI, and Fabric.“ is writing.
office benefits
Sills said Office could also benefit from AI, thanks to Microsoft's Copilot product.
“We expect improved commercial office growth (17% compared to our base case) to drive revenue forecast for the (Productivity and Business Process Performance) segment to $19.5 billion (up 11.5% year over year, up 11.5% year over year). We expect an increase of $220 million (up 11% vs. average sales price), driven by continued strength of E3/E5 and initial traction from the M365 co-pilot. „There are,“ Sills said. “Channel feedback suggests an increase in his Copilot activity primarily in the pipeline, but also early adopters as well.”
The arrival of the AI cycle
Despite Microsoft seeing AI-related benefits in Azure and Copilot, Sills believes many of the benefits from AI are still to come.
„…the AI cycle is gaining momentum and given the size of the AI opportunity (IDC estimates the AI market at $944 billion by 2027), multiple holdings are expected.“ Sills explained. „Then we will see an increase in AI's contribution over the next few quarters, accelerating FCF growth towards the low 20% range and pushing the stock further higher.“