On Friday, Evercore ISI maintained a positive stance on Microsoft Corporation (NASDAQ:MSFT), reiterating an Outperform rating with a price target of $500.00. The research firm’s analysts highlighted the potential for Azure, Microsoft’s cloud computing service, to accelerate growth in the second half of the fiscal year (F2H). They believe this could shift investor focus back to the company’s long-term revenue and earnings per share (EPS) growth.
The analysts pointed to several factors that could drive Azure’s growth, including a stable cloud services spending environment, increased enterprise adoption of AI services, and additional AI-related capacity. They anticipate Azure’s growth to return to the 33-34% range in the upcoming quarters. For the second fiscal quarter (F2Q), they expect Azure’s growth to meet or exceed the high end of the 31%-32% guidance range, despite a slight benefit from an extra day in the third fiscal quarter (F3Q) of the previous leap year.
Evercore ISI also noted that favorable guidance for Azure’s growth in the third fiscal quarter (F3Q), within the 32%-34% range, should be seen positively as the leap year effect will reverse in the fourth fiscal quarter (F4Q), leading to a higher growth rate to conclude FY25. They predict that if Azure’s growth accelerates along with a slowdown in capital expenditure (capex) growth, likely in F4Q, it will reinforce Microsoft’s capability to sustain robust growth in both top and bottom lines.
The firm acknowledged that foreign exchange (F/X) rates would create some volatility around the second fiscal quarter results and third fiscal quarter guidance. However, any significant pullback in the stock price due to F/X issues or the leap year comparison for Azure was viewed as a potential buying opportunity. Evercore ISI sees the risk/reward for Microsoft over the next 3-6 months as significantly tilted to the upside.
In their analysis, the analysts discussed the setup for Azure, trends in capex spending, the outlook for Copilot trends, and operational margins. They also updated their estimates to reflect a more challenging F/X environment, with full adjustments detailed on page 10 of their report.
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