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Microsoft Corp. (NASDAQ:MSFT) shares fell late Tuesday after the software giant’s cloud revenue missed forecasts and forward guidance came in shy of estimates of some analysts. Market watchers and analysts apparently weren’t overly concerned by what was perceived as sore spot by investors.
Future Perfect: The conference call was bullish, with CEO Satya Nadella and CFO Amy Hood talking about stronger commercial bookings for the June quarter and hinting at acceleration in Azure revenue in the second half of the year, of a 29% baseline growth, said Wedbush analyst Daniel Ives.
“This is the most important data point from the conference call in our opinion as MSFT discussed AI monetization trends that should accelerate in FY25 as more enterprise customers head down the Azure/Copilot and AI roadmap for their organizations,” the analyst said.
Ives termed the quarter as “fine,” but not a “blowout,” typical of Microsoft’s June quarter. It disappointed some investors, Ives said, making sense of the sell-off. The guidance for headline metrics was mostly in-line, he added.
“Nothing from this quarter or conference call makes us less bullish in our AI thesis….and ultimately the validation from the key perch of Nadella and Microsoft give MORE credence to the AI Revolution story….not less despite a modest sell-off after hours,” Ives said.
Wedbush maintained an Outperform rating and a $550 price target for the shares.
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Sell-Off Insane: CNBC Mad Money host Jim Cramer said the after-hours decline seen in Microsoft shares before the conference call was a “little insane.”
“I am saying that the decline we saw before the conference call was a little insane…By the way, Pinterest wasn’t even that bad. AMD was great,” he said.
Cloud – The Pressure Point: Microsoft beat 11 of the 12 operating metrics and the only miss was in the Intelligent Cloud business, which comprises the Azure public cloud business, said Deepwater Asset Management’s Gene Munster. The miss was only a modest 0.6%, he said. “The result: Stock is down 7%. This defines pressure point,” he added.
Looking at the Azure miss from another perspective, the tech venture capitalist said, Azure’s slight miss has a “unique sting” given it is now growing at the same pace as Alphabet, Inc.’s (NASDAQ:GOOGL) (NASDAQ:GOOG) Google Cloud Platform. GCP grew at a 29% pace, he noted. This suggested Azure is gaining a share on Amazon, Inc.’s (NASDAQ:AMZN) AWS and not on GCP.
Munster also sees Microsoft’s growing capex as a good thing. The 51% year-over-year growth in capex may pressure margins in the near term but long term it would push the company higher, he said. The tech analyst expects Microsoft’s higher capex plan to bode well for companies such as Nvidia Corp. (NASDAQ:NVDA) and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM).
In premarket trading on Tuesday, Microsoft shares fell 2.37% to $412.89, according to Benzinga Pro data.
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