What Wall Street is saying about Microsoft ahead of earnings

Microsoft (MSFT) is expected to report its fiscal 2025 first quarter results on Wednesday, October 30, after the market closes. A conference call is scheduled for 5:30 p.m. ET. What you should pay attention to:

CLOUD: In the fiscal fourth quarter, the company reported earnings and revenue that exceeded consensus forecasts. Server products and cloud services revenue increased 21% and 22% at constant currencies, respectively, driven by Azure and other cloud services revenue growth of 29% and 30% at constant currencies, Microsoft noted.

Satya Nadella, Chairman and CEO of Microsoft, said: “Our strong performance this fiscal year is a testament to both our innovation and the trust customers continue to place in Microsoft.” As a platform company, we are focused today on meeting the business-critical needs of our customers our large-scale platforms while ensuring we lead the AI ​​era.”

Microsoft CFO Amy Hood highlighted “record bookings” and quarterly Microsoft Cloud revenue of $36.8 billion, up 21% and 22% year-over-year in constant currencies.

The day after the company's latest report, JPMorgan maintained an Overweight rating on Microsoft, saying the company did not believe investors were prepared for a slowdown in Azure growth as improvements in optimizations and cloud Migrations as well as the expansion of Copilots and Azure OpenAI Service would be perceived and the company's high capital investments. The quarter featured less revenue growth than usual, and Azure came in at the low end of Microsoft's fourth-quarter guidance and below consensus for the first quarter, the analyst told investors. However, the company saw “some bright spots,” noting that Microsoft had made record commitments to its Microsoft Cloud platform. JPMorgan believes Microsoft's momentum in artificial intelligence remains intact and its long-term development is “unimpaired,” the company added in its post-earnings note.

Recently, Citi lowered the company's price target on Microsoft from $500 to $497 and maintained a Buy rating on the stock. The company says Microsoft shares underperformed last quarter as “investors struggle to rationalize huge capital expenditure increases amid disappointing Azure growth and slowing earnings growth.” The company sees a “mixed constellation” for the Q1 report. However, Citi's Reseller and CIO survey showed general stability and expects the second quarter to have a slight upside surprise. The company is a buyer of the dip as it expects investor sentiment to turn more positive after the quarter before another acceleration in Azure growth and earnings growth in the second half of the year.

Meanwhile, Truist tells investors that “numbers will keep up with the hype” in the coming year. Based on the company's discussions with customers, partners and resellers, as well as its survey of enterprise IT buyers, Truist expects Microsoft to outperform in key enterprise categories. The company did not change its Buy rating or its $600 price target.

Expectations “too high”: On September 23, DA Davidson analyst Gil Luria downgraded Microsoft from “Buy” to “Neutral,” with a then-unchanged price target of $475. The company believes competitors have “largely caught up with Microsoft on the AI ​​front,” reducing the justification for a higher valuation, the analyst told investors. Note that Amazon (AMZN) AWS is already adding nearly as much cloud business as Azure, after a few quarters of Microsoft adding more business and Google's (GOOGL) GCP's growth has also led to an acceleration of the business to growth rates comparable to Azure in the last quarter. The company argues that Microsoft's lead has now shrunk in both its cloud business and its code generation business, which it believes will make further outperformance difficult for shares.

On October 8, Oppenheimer downgraded Microsoft to Perform from Outperform and removed the company's previous price target. The company believes consensus estimates for revenue and earnings per share are too high, citing OpenAI losses that could be in the range of $2 billion to $3 billion in FY25 as its “main concern.” Companies have been slow to adopt AI and associated revenues are likely to disappoint, analyst tells investors. Given that Microsoft is investing in “unique” technology, the company does not believe increasing margins will be a near-term priority, the analyst added.

According to LSEG Data and Analytics, current consensus earnings per share and revenue forecasts for Microsoft's quarter ending September are $3.10 billion and $64.51 billion, respectively.

Of the analysts tracked by Bloomberg who have updated their views on Microsoft in the last twelve months, 64 have a Buy rating or equivalent, 5 have a Hold rating or equivalent, and the average 12-month price target is 50 of those Analysts are at $500.16.

OPENING: On October 2, OpenAI raised $6.6 billion in new funding at a post-money valuation of $157 billion to “accelerate progress on our mission.” The company said: “We are making progress on our mission to ensure that artificial general intelligence benefits all of humanity.” Every week, over 250 million people around the world use ChatGPT to improve their work, creativity and learning. Across industries, companies are improving their productivity and operations, and developers are using our platform to build a new generation of applications. And we're just getting started… The new funding will allow us to double our leadership in emerging AI research, increase computing capacity, and continue to develop tools that help people solve difficult problems. Our goal is to make advanced intelligence a widely accessible resource.”

OpenAI's investors include Microsoft, Thrive Capital, Khosla Ventures, Fidelity Management and Nvidia (NVDA) and SoftBank (SFTBY), the company noted at the time of its funding announcement.

On October 18, The Wall Street Journal's Berber Jin and Corrie Driebusch reported that OpenAI and Microsoft are going head-to-head in a high-stakes negotiation as the startup behind ChatGPT transitions from nonprofit to for-profit after closing a valuable round of funding worth $157 billion -Dollar. Microsoft could end up owning a large stake in the startup after investing nearly $14 billion, but both Microsoft and OpenAI have hired investment banks to advise them on how to implement their investment in equity in the for-profit company. Microsoft is working with Morgan Stanley (MS) and OpenAI is working with Goldman Sachs (GS), people familiar with the matter told the Journal.

That same day, Cade Metz, Mike Isaac and Erin Griffith of the New York Times reported that the partnership between Microsoft and OpenAI had “fallen apart,” citing people familiar with the matter. While Microsoft CEO Satya Nadella was initially willing to keep the cash investments going, he began to reconsider after OpenAI's board briefly ousted OpenAI CEO Sam Altman last year, the report said. Altman once called OpenAI's partnership with Microsoft “the best friendship in technology,” but relations between the companies are beginning to fray. Financial pressure on OpenAI, concerns about its stability and disagreements between employees at the two companies have strained the five-year partnership, people familiar with the matter said.

FEELING: Check out the current media buzz sentiment on Microsoft as measured by TipRanks.