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Solid Results Likely for Microsoft

We're expecting the long-term trends to remain intact, and we still foresee very strong growth from Azure and Office365.


Dan Romanoff: We are expecting a continuation of solid results for the most part within the software industry this quarter. For Microsoft, specifically, we think the setup is favorable heading into the print on April 24. Last quarter, Windows OEM results were weaker due to low-end chipset shortages at Intel, which were expected to drag on this quarter. While it won't be a negative surprise this quarter, it has the added benefit of already softer investor expectations. We're expecting the more important long-term trends to remain intact, and we still foresee very strong growth from Azure and Office365. 

Two data points we think are critical are commercial cloud gross margin and Azure growth, both of which are provided on quarterly basis by the company. Azure is driving rapid growth in commercial cloud, and, even while it generates lower gross margin relative to the corporate average, those margins are improving rapidly as Azure scales and should help lift overall margins. These trends are at the core of our thesis for sustained growth. 

Dan Romanoff does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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