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Investing.com -- In a note Thursday, KeyBanc Capital Markets upgraded Microsoft (NASDAQ:MSFT) back to Overweight after a brief downgrade, citing surging Azure growth that “solves all problems.”
Analysts admitted the firm’s April downgrade was poorly timed, noting that Microsoft has “bolstered the argument for positivity on almost every front.” KeyBanc’s upgrade comes with a reinstated price target of $630.
Microsoft reported earnings after the close on Wednesday, topping earnings and revenue expectations. The company reported earnings per share of $3.65, $0.28 better than the analyst estimate of $3.37, while revenue for the quarter came in at $76.4 billion versus the consensus estimate of $73.79 billion.
Cloud revenue for the quarter stood at $29.9 billion.
The turnaround was driven largely by Azure’s accelerating momentum. “Azure growth accelerated eight full percentage points in constant currency over the second half, from 31% in January to 35% in March to 39% exiting the year,” KeyBanc said. “The last two quarters have rendered the debates all but irrelevant for the time being.”
The Azure segment produced roughly $500M and $700M of upside to guidance in the last two quarters, respectively.
“The equivalent of finding a Monday.com in your couch cushions,” the analysts said. “Upside like this is why we do not expect the costs of supporting the Azure business to be debated much for the remainder of the year.”
KeyBanc also noted that demand continues to outpace Azure’s available capacity, creating additional potential for upside. “Azure better in-quarter, better guide, and better potential upside,” the firm said.
Beyond cloud growth, the firm pointed to Microsoft’s cost discipline, noting the company has “laid off over 10,000 employees” since the downgrade. “There was no material mention of macro headwinds on the call,” they added.
Reflecting on its previous downgrade, KeyBanc concluded: “Now we don’t have the stomach or the thesis for it.”