Company Reports

Wide-moat Microsoft continues to deliver with strong third-quarter results, topping both our top- and bottom-line estimates. Given stronger near-term growth and profitability, we are raising our fair value estimate to $435 per share, from $420 previously. Results are impressive from most angles, but we highlight strength in AI, Azure, and gaming; a surge in bookings from large Azure deals; and robust margin performance despite downward pressure from the Activision acquisition are our key takeaways. Artificial intelligence remains the focal point and contributed 700 basis points to Azure growth. Management also provided a high-level preview for fiscal 2025 that included double-digit revenue growth and operating margin contraction of about 1 percentage point, which is consistent with our model. With shares trading up 4% after hours, they remain in 3-star territory.

Microsoft is one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Based on its investment in OpenAI, the company has also emerged as a leader in artificial intelligence. The company has also enjoyed great success in upselling users on higher priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins.

Microsoft is one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Based on its investment in OpenAI, the company has also emerged as a leader in artificial intelligence. The company has also enjoyed great success in upselling users on higher priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins.

Wide-moat Microsoft continues to impress with solid second-quarter results, including upside on both the top and bottom lines. Even though management will not admit as much, we continue to see indicators that the demand environment has improved at least modestly. Artificial intelligence stole the show again this quarter as it contributed 600 basis points to Azure growth, twice the contribution from just last quarter, and helped land larger and longer-term Azure deals. Azure growth, then, was meaningfully better than expected. We find Microsoft’s outlook encouraging, especially for Azure. These factors drive us to raise our revenue growth and margin estimates by approximately 1 percentage point each over the next five years, which increases our fair value estimate to $420 per share from $370. Despite this increase, we see the shares as fairly valued.

Microsoft is one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Based on its investment in OpenAI, the company has also emerged as a leader in artificial intelligence. The company has also enjoyed great success in upselling users on higher priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins.

Wide-moat Microsoft reported solid first-quarter results, including meaningful upside on both the top and bottom lines. We see modest improvement in the demand environment on the commercial side, with Azure strength, modest AI contributions, an easing of cloud optimization efforts by clients, and persistently solid execution. We’re also encouraged by Microsoft’s outlook, especially consistent Azure growth in excess of 25% throughout the year. Guidance includes Activision, which adds more than $6 billion in revenue to our estimates but pressures margins in the near term. These factors drive us to raise our fair value estimate to $370 from $360. We continue to see shares as modestly undervalued, dancing between 3 and 4 stars.

Microsoft is one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Based on its investment in OpenAI, the company has also emerged as a leader in artificial intelligence. The company has also enjoyed great success in upselling users on higher priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins.

On Oct. 13, wide-moat Microsoft closed its acquisition of Activision, resulting in no change to our $360 per share fair value estimate. The regulatory approval process entangled the $69 billion transaction for 20 months, with the deal being left for dead and eventually revived along the way. We see shares as undervalued, as strength in 2023 for software has waned since mid-July. The company reports first-quarter earnings on Oct. 24, which is when we expect an initial update surrounding the transaction.

Wide-moat Microsoft reported solid fourth-quarter results, including upside on both the top and bottom lines. We see continued signs of encouragement in important areas like Azure, which did slightly better than our model; and Microsoft 365, which was solid, based on better-than-expected upsells and renewals. However, the outlook overall was slightly shy of our model. Further, capacity investments in front of artificial intelligence-driven demand will limit near-term margin expansion, which we think is an easy trade given the opportunity. The upshot of this is that AI demand is already materializing. Lastly, macroeconomic pressures remain, but don't seem to be worsening. We think results are solid overall, and after advancing our model to account for the firm's year-end, we lift our fair value estimate to $360 per share, from $325, and continue to view shares as attractive.

Microsoft is one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Based on its investment in OpenAI, the company has also emerged as a leader in artificial intelligence. The company has also enjoyed great success in upselling users on higher priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins.

We see a clear path forward for wide-moat Microsoft’s acquisition of Activision, as a federal judge denied the Federal Trade Commission’s motion for a preliminary injunction to halt the deal. We maintain our fair value estimate of $325 per share and see the stock as fairly valued.

Microsoft reported a strong fiscal third quarter, including meaningful upside on both the top and bottom lines. We see signs of encouragement in important areas like Azure, which were slightly better than our model; and Microsoft 365, which was solid, based on better-than-expected renewals. The outlook for June was actually better than our above-consensus view, which is also a positive indicator. Macroeconomic pressures persist but are not worsening despite some new challenges, such as the simmering banking crisis. On balance, we think there is more for bulls to embrace here. Thus, we raise our fair value estimate for wide-moat Microsoft to $325 per share, from $310, and continue to view shares as attractive.

Since taking over as CEO in 2014, Satya Nadella has reinvented Microsoft into a cloud leader such that it has become one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Additionally, Microsoft embraced the open-source movement and has largely transitioned from a traditional perpetual license model to a subscription model. The company has also enjoyed great success in upselling users on higher priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins.

Since taking over as CEO in 2014, Satya Nadella has reinvented Microsoft into a cloud leader such that it has become one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Additionally, Microsoft embraced the open-source movement and has largely transitioned from a traditional perpetual license model to a subscription model. The company has also enjoyed great success in upselling users on higher priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins.

Microsoft reported solid fiscal second-quarter 2023 results, including generally inline revenue and modest EPS upside after factoring in the $1.17 billion restructuring charge taken to reduce headcount and rationalize facilities. The outlook for March, however, was once again shy of our below-consensus estimates. Azure continues to decelerate but came in slightly better than guidance, while macro pressures seem to be steady or slightly worse. Bulls can highlight Microsoft’s good growth in remaining performance obligation and Azure, while bears can point to decelerating revenue growth and light guidance. We are lowering our fair value estimate for wide-moat Microsoft to $310 per share, from $320, and continue to view shares as attractive.

The U.S. Federal Trade Commission, or FTC, announced it intends to block wide-moat Microsoft’s $69 billion acquisition of Activision Blizzard. While we think Activision would strengthen Microsoft’s gaming division, we do not believe the health of the business unit, let alone the overall company, hinges upon the acquisition. Further, we think it is still more likely than not that the deal closes, even if more concessions are required.

Microsoft reported solid fiscal first-quarter 2023 results, including revenue and EPS results ahead of the guidance midpoints. The outlook, however, was worse than our below-consensus model was contemplating. Macro pressures continue to weigh on the company’s performance. Bulls can point to good growth in commercial bookings and commercial remaining performance obligation to find near-term comfort, while bears will no doubt highlight slowing Azure and weaker-than-expected guidance. We continue to find encouragement in Azure, Office E5 migration, and traction with the Power platform for long-term value creation, but we think near-term pressures will not be exhausted within the next quarter. It is premature to say the Azure growth story is over despite the slowdown. We see results as reinforcing our thesis centering on the proliferation of hybrid cloud environments and Azure, as the firm continues to use its on-premises dominance to allow clients to move to the cloud at their own pace.

Since taking over as CEO in 2014, Satya Nadella has reinvented Microsoft into a cloud leader such that it has become one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Additionally, Microsoft embraced the open-source movement and has largely transitioned from a traditional perpetual license model to a subscription model. The company has also enjoyed great success in upselling users on higher priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins.

Since taking over as CEO in 2014, Satya Nadella has reinvented Microsoft into a cloud leader such that it has become one of two public cloud providers that can deliver a wide variety of PaaS/IaaS solutions at scale. Additionally, Microsoft embraced the open-source movement and has largely transitioned from a traditional perpetual license model to a subscription model. The company has also enjoyed great success in upselling users on higher priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins.

Microsoft reported headline fiscal fourth-quarter revenue and EPS results just below the low end of the lowered guidance range from June 2. However, we believe that Microsoft's fundamentals remain sound, as the company's performance was hurt mainly by things beyond its control, such as a stronger U.S. dollar, persistent supply chain issues, further scaling back in Russia, and general macroeconomic pressures. We are encouraged by several pockets of strength, such as Azure, the continued migration to Office E5, and traction with the Power platform. We consider guidance to be quite good in the face of investors' intense fear. We see results as reinforcing our thesis centering on the proliferation of hybrid cloud environments and Azure, as the firm continues to use its on-premises dominance to allow clients to move to the cloud at their own pace. We also think Microsoft's strong pipeline of large deals bode well for the broader software industry overall. We are maintaining our $352 per share fair value estimate for wide-moat Microsoft and view shares as attractive.