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Key Takeaways
- Microsoft’s stock rose 7.6% Thursday, its biggest post-earnings rise since 2015.
- Cloud-computing revenue at the company surged to $27 billion, driven by faster-than-expected growth in the company's AI and cloud platform, Azure.
- CFO Amy Hood noted that AI demand continued to outstrip supply, comments that helped temper Wall Street's fear that macroeconomic uncertainty would slow AI growth.
Microsoft (MSFT), the stock of the tech giant, soared Thursday after its quarterly results blew away Wall Street expectations.
Shares closed at $425.20 on Monday, marking the stock’s best post-earnings performance for nearly 10 years. Microsoft’s stock last soared more than 10% on earnings in October 2015, when the company announced that revenue from its new Azure cloud computing business more than doubled compared to the previous year.
Wall Street was elated to hear that Microsoft’s major business units had all posted strong results. The company’s cloud computing division saw sales rise 22% in constant currencies (cc) to almost $27 billion. Revenue at its productivity and business software unit also grew double digits, and even devices revenue—a soft spot for most tech companies of late—increased 3%.(cc)
Wall Street was most excited by Microsoft’s Azure cloud computing and AI platform. Azure’s growth accelerated in the third quarter to 35% (cc), well ahead analysts’ expectations. CFO Amy Hood noted on Wednesday’s earnings report that despite recent economic uncertainty AI demand continued growing faster than Microsoft’s supplies.
Hood’s warning helped calm some fears on Wall Street about macroeconomic headwinds that could stunt AI growth. The AI stocks that tumbled from their record highs earlier this year—like chipmaker Nvidia (NVDA) and nuclear power providers Constellation Energy (CEG) and Vistra (VST)—led Thursday’s rally.
Analysts are more optimistic after Wednesday
BMO analysts raised their price target for Azure to $485 in the morning of Thursday, citing an “improved Azure” growth.
Bank of America Securities analysts said that Microsoft’s collaboration with OpenAI is a major reason for the Azure success, “which should ease fears that the relationship has frayed.” The firm raised the price target of the stock to $515 by 7% and reiterated that it was a “top pick.”
“We remain confident that MSFT’s revenue growth opportunities over the medium-term and beyond are greater than many realize, and we continue to be very bullish on its tangible GenAI adoption and monetization levers,” Mizuho Americas analysts wrote on Thursday as they raised their price target to $500.
