- Bernstein analyst Mark Moerdler maintains Microsoft Corp MSFT with an Outperform rating and raises the price target from $280 to $322.
- Commercial Cloud and Azure specifically have become significant parts of the Microsoft investment thesis, but Azure growth has recently decelerated visibly.
- The IT spending slowdown and the excess enthusiasm around moving everything to the Cloud overnight have helped drive this deceleration, as have other macro and industry factors. But that may not be all.
- With earnings tomorrow, the analyst looks at the revenue streams that comprise Azure and gain insights into the past and what should happen in the future to Azure growth—but expects the management to respond to a spending slowdown or a sustainable demand change.
- He finds Azure IaaS and PaaS growth is incrementally slower, which is not surprising, but growth stepped down in the last few quarters (especially last quarter).
- Azure consists of both platforms, SaaS and IaaS/PaaS.
- IaaS/PaaS has historically outgrown Azure SaaS. Still, recently, IaaS/PaaS has decelerated faster than SaaS and is growing at the same rate as overall Azure revenue, implying the speed with which the usage dial of IaaS/PaaS can be turning and the impact of delays in large projects (Cloud lift and shift and migrations). Still, it could also mean that it could rebound more quickly. It is, therefore, all about understanding the demand.
- With investor sentiment having risen due to the possibilities that AI and, more specifically, GPT create for Microsoft, the analyst raised the price target for Microsoft.
- The analyst agrees that there are numerous dimensions in which AI will drive additional revenue for Microsoft. He also believes that investors will be willing to absorb a bit more complexity and even some weakness in Microsoft results as they look forward to the upside from AI enablement of Microsoft solutions.
- Price Action: MSFT shares traded lower by 1.47% at $281.55 on the last check Monday.
- Photo by Rainer Stropek via Flickr
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