Despite being optimistic about AI leadership, Microsoft analyst is cautious due to high interest rates.

 

Microsoft Corp. (NASDAQ: MSFT) analyst Michael Turits of KeyBanc reaffirmed an Overweight rating with a $400 price target.

Following stable Microsoft results in his Q3 VAR Survey and comparable or better feedback on Azure from a few significant channels, including favorable comments on genAI contribution to Azure growth, the analyst re-rated Microsoft ahead of its Q1 earnings.

Before Q1 earnings, analysts are optimistic about Microsoft's Azure and AI growth. Here's why. On this basis, Turits anticipates a somewhat comparable Q1. Given the continuous high-rate environment, macro issues raised in his HubSpot checks, and one particularly significant channel he brought to light on O365 related to macro, he continued to exercise care, nevertheless.

With MSFT up marginally Q/Q to 91%, the VAR survey meets and exceeds expectations. Large channels he spoke to claimed that Azure was meeting or exceeding their expectations.

With remarks indicating a shallowing slowing and stabilization in cloud growth over the following several quarters, the C4Q Azure estimates for the following quarter were for comparable growth.

According to his presumptions, IDC and Gartner's 3Q23 PC shipment Y/Y% fall forecasts of -7.6% and -9.0% y/y were in accordance with the guidance for Q1 Windows OEM.

Turits continues to be pleased with Microsoft's leadership in both infrastructure and apps. He anticipates being helped by demand for OpenAI and wider AI and genAI model training, deployment, and application development as a benefactor of generative AI with M365 Copilot GA for enterprise and Azure.

He anticipates the Activision Blizzard acquisition to be included in the Q2 guidance. He projects a non-GAAP $0.06 and $0.13 accretion to Q2 and FY24 EPS based on consensus.

With remarks indicating a shallowing slowing and stabilization in cloud growth over the following several quarters, the C4Q Azure estimates for the following quarter were for comparable growth.

According to his presumptions, IDC and Gartner's 3Q23 PC shipment Y/Y% fall forecasts of -7.6% and -9.0% y/y were in accordance with the guidance for Q1 Windows OEM.

Turits continues to be pleased with Microsoft's leadership in both infrastructure and apps. He anticipates being helped by demand for OpenAI and wider AI and genAI model training, deployment, and application development as a benefactor of generative AI with M365 Copilot GA for enterprise and Azure.

He anticipates the Activision Blizzard acquisition to be included in the Q2 guidance. He projects a non-GAAP $0.06 and $0.13 accretion to Q2 and FY24 EPS based on consensus.