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Microsoft poised for growth in Q3, Bank of America analysts say

Published 2024-04-19, 01:02 p/m
© Reuters.  Microsoft poised for growth in Q3, Bank of America analysts say

Proactive Investors - Microsoft Corp (NASDAQ:MSFT) is expected to showcase a strong performance in its upcoming fiscal third quarter earnings release.

Bank of America (NYSE:BAC) analysts are projecting 1% upside to the Street’s revenue estimate of $60.5 billion.

The optimism stems from expectations of solid growth in key segments, particularly Azure and M365. The bank noted stable new workload activity in Azure and anticipates Azure's growth to surpass expectations, driven by positive feedback from system integrator partners.

Additionally, analysts expect Office segment revenue to increase, primarily due to sustained strength in E3/E5 and early traction with M365 Copilot.

However, they foresee a slight downside in personal computing revenue, attributed to weaker PC sales. Overall, Bank of America remains bullish on Microsoft's outlook, emphasizing the importance of evidence showing the traction of key AI-related product cycles as the next catalyst for the company's shares.

“(We) believe the next catalyst for Microsoft shares will be evidence that key AI-related product cycles are gaining traction via incremental growth metrics such as M365 Copilot users or via accelerating Commercial Office ASP (from the current 6% to 7% level),” analysts wrote.

“Microsoft's shares are pricing in AI-driven revenue and FCF acceleration, trading at 37x our C25E FCF estimate. However, we see the multiple holding with an AI cycle that is gaining momentum and given the scale of the AI opportunity.”

Bank of America has reiterated its ‘Buy’ rating and price objective of $480.

Microsoft is set to release its 3Q results on April 25.

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