Microsoft (MSFT) Jumps After Bullish Assessments Ahead of Earnings

Microsoft Corporation (MSFT) shares jumped by 2% Thursday morning after a raft of analyst reports forecast a positive outlook for the company's upcoming earnings report.

Bank of America analyst Brad Sills reiterated Microsoft as his top pick and revised estimated revenue targets for the company. Citi analyst Tyler Radke forecast a "modestly positive set-up," and Cowen analyst Derrick Wood maintained his Outperform rating in a note to clients.

Key Takeaways

  • Microsoft shares jumped by 2% in early trading on Jan. 20 after analysts sent out bullish notes to clients.
  • Bank of America's Brad Sills reiterated Microsoft as his top pick and revised his estimates for its revenue in the coming quarters.
  • Cowen analyst Derrick Wood says that Office 365 could become the world's biggest SaaS business.
  • Citi's Tyler Radke has a contrarian take and stated that Microsoft's cloud business could see slower growth this year.

The sanguine assessments from analysts come in wake of Microsoft's purchase of gaming giant Activision Blizzard, Inc. (ATVI). The acquisition, which is the biggest in Microsoft's history, could change contours of the gaming industry and generate a new stream of revenue for the tech giant. In their notes, however, analysts emphasized the importance of Microsoft's cloud business and associated services to its future top line.

A Cloud Story  

"We believe that Microsoft is well positioned to generate sustained low double-digit growth in the coming 3-5 years, led by continued adoption of Azure cloud infrastructure platform, cloud based Office 365 productivity suite and more profitable Games and Game Pass revenue in Xbox," wrote BoA's Brad Sills in a note to clients. 

He has a bullish take on performance for Microsoft's segments. He noted that Azure, the company's cloud division, could post growth as high as 49%, above his estimate of 46%. The More Personal Computing division, which includes hardware, could register additional revenues of $250 revenues, over and above his estimate of $16.6 billion for the segment. 

Sills is expecting Microsoft to report $50.7 billion in revenue—a 17.6% increase from last year—for the second quarter of 2022, when it announces earnings on Jan. 25. Sills notched up his figures of the company's revenues to $47.7 billion (from the earlier $47.3 billion) and $52 billion (from $51.4 billion) for the second and third quarter, respectively. However, he did not revise his price target of $365 per share for the stock.

Cowen analyst Derrick Wood has a similar take. He stated that Azure will continue to drive future gains for Microsoft and that its cloud productivity suite Office 365 will become the world's biggest software-as-a-service business. He has a $360 price target for the stock.   

Citi analyst Tyler Radke provided a contrarian perspective. He does not share the upbeat analysis of Microsoft's cloud business. According to him, growth for Azure, Microsoft's cloud division, will slow down in comparison to its performance last year due to weaker bookings last quarter. Instead, he is expecting Office 365 and Dynamics to power Microsoft's earnings. Radke has also revised his earnings estimate for this fiscal year down to $9.69 from $9.72 and lowered his price target to $376 from $407.

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  1. Barron's. "Microsoft Reports Earnings Next Week. The Street Is Upbeat."

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