Proactive Investors - The performance of Microsoft Corp (NASDAQ:MSFT)'s cloud computing platform Azure will be a key focus for investors when the tech titan reports its fiscal fourth quarter earnings on Tuesday, July 30, after the stock market closes.
Analysts at UBS see potential Azure upside, from both AI and non-AI/core demand as a major discussion point among investors heading into the print.
They see investor expectations of Azure growth of 32% for Q4 and guidance of 30% growth for Q1 as “doable”
“On Azure, the read-through from the Google (NASDAQ:GOOGL) Cloud results (second-best sequential revenue growth quarter ever) was positive, as was our meeting with rival/partner CoreWeave last week,” the analysts wrote in a note to clients.
“CoreWeave’s revs and backlog growth trajectory is outstanding and with Microsoft as a major customer, we view this as a positive for AI infrastructure demand. We’re definitely in a tight IT budget backdrop, but the Azure demand signals are bullish.”
Other focus areas for investors will be the company's capital expenditures (capex) trends and return on Microsoft’s AI investment and Office growth, specifically if Copilot's uplift can offset slowing seat growth.
On capex, the analysts are raising their fiscal year 2025 estimate from $68 billion to $73 billion, in line with the buy-side consensus of $70 billion to $75 billion.
“On Office 365, we see minimal upside to the Q4 growth guide of 14% and are trimming our ex-Copilot estimate slightly to reflect weak seat growth signals,” they wrote.
The UBS analysts repeated their ‘Buy’ rating on Microsoft and gave it a $520 price target, implying upside of more than 20% from its current share price. Microsoft shares traded 0.8% lower at about $423 ahead of its earnings report on Tuesday.
“While we typically hear shades of bullishness into Microsoft prints, this time the stock is down 10% since the July 9th large-cap weakness began and we’re hearing from hedge funds that are neutral or short on a ‘we see minimal upside’ thesis,” they wrote.
“We view the stock as being reasonably priced given how levered Microsoft is to the AI phenomenon as well as the strong EPS growth.”
- Updated with share price movement -