Microsoft may be facing some near-term pressures, but most analysts think the stock remains a buy at current levels. The tech giant reported a better-than-expected quarterly profit Tuesday, earning $2.32 per share. Analysts on average expected earnings per share of $2.29, according to Refinitiv. Revenue came in at $52.75 billion, slightly below an estimate of $52.94 billion. However, Microsoft shares fell more than 2% in Wednesday premarket trading after the software giant issued a lackluster revenue forecast for the current quarter. Finance chief Amy Hood told analysts during a conference call Tuesday that, “In our commercial business we expect business trends that we saw at the end of December to continue into Q3.” The company’s Microsoft 365 subscriptions grew at a slower-than-expected pace. Growth was also slower than forecast for Microsoft’s for identity and security services and business-oriented Windows products. MSFT 1D mountain MSFT under pressure Still, most analysts covering Microsoft are standing by the stock. Citi analyst Tyler Radke said Microsoft remains “best positioned” among the large cap software names, saying that it offers investors a good mix of growth and profitability. Radke has a buy rating on the stock, and raised his target price slightly to $282 from $280. Notably, the analyst said that “guidance looks more conservative to us, particularly across Azure, Windows OEM, and opex, likely in an attempt to derisk FY23,” Radke wrote Wednesday. “Although difficult to call it the last cut (pending macro factors/recession risk), even on lower numbers, MSFT’s consolidated revenue and EPS growth is beginning to accelerate from these levels, which we think can be a differentiator.” Morgan Stanley’s Keith Weiss maintained an overweight rating on the stock, and a $307 price target, saying the company’s near-term troubles have created an “attractive entry point into one of the best secular growth stories in tech.” Specifically, the analyst expects the firm’s AI developments is raising the market opportunity for Azure. “Easing comparisons, price increases, waning FX headwinds and decelerating opex all work to accelerate EPS growth to double digits by Q4, which should bring investors back to MSFT,” Weiss added. Bank of America’s Brad Sills, meanwhile, reiterated a buy rating on the stock, saying there’s no change to his long-term bullish view on Microsoft. The analyst pointed to sustained demand across Microsoft’s portfolio despite the current macro pressures. “With reported results +/- 1% from guidance in each of the last 3 quarters and 3 quarters forecasting in this environment, we believe Azure visibility is improving & Q3 outlook is beatable by a similar magnitude,” Sills wrote. “Commentary suggests multi-year signings remain healthy and consumption headwinds are largely from macro pressure and not demand pull forward.” Sills expects and Microsoft will continue to sustain low double digit growth in the coming three to five years. His $300 price target represents more than 23% upside from Tuesday’s closing price for the stock. ‘Premium valuation’ DA Davidson’s Gil Luria was especially bullish on Microsoft, saying that the tech giant “deserves a premium valuation relative to the market and its Pac4 comparables.” The analyst expects the firm’s guidance to have “properly calibrated” market expectations. “We believe FY23 estimates are now de-risked as Azure and PC slowdowns reflect 2023 spending trends. By reporting earnings early, we believe MSFT is in better shape than other Pac4 (AAPL, AMZN, GOOGL) and Software stocks that still have to reset expectations for the 2023 spending slowdown,” Luria wrote. Luria maintained a buy rating and raised the firm’s price target to $280 from $270. To be sure, not everyone remained as bullish on the stock. BMO Capital Market’s Keith Bachman downgraded shares of Microsoft to market perform, citing “ongoing uncertainty” with its Azure cloud business. He lowered his price target to $265 from $267. “We had previously placed Microsoft on our negative watch list in our 2023 outlook note published in December 2022, based largely on concerns for Azure growth,” Bachman wrote. “Until Azure growth stabilizes, we envision the stock being range bound.” —CNBC’s Michael Bloom contributed to this report.
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