ORCL - Microsoft cloud momentum 'better than feared' Wedbush says

2023-04-12 07:17:53 ET

Microsoft ( NASDAQ: MSFT ) is slated to report fiscal third-quarter earnings on April 25 and checks into its all-important cloud computing unit have held up "better than feared," investment firm Wedbush Securities said.

Analyst Dan Ives, who has an outperform rating on Microsoft ( MSFT ) noted that growth for Azure has been "stable" and that most deals have been green lighted.

"Our recent checks in the field have been positive around overall cloud deal flow and momentum for Redmond in the March quarter despite Street fears with our analysis that [Satya] Nadella & Co. should be able to at least hit the low 30% Azure growth bogey for the quarter," Ives wrote in an investor note.

Ives raised his per-share price target on Microsoft ( MSFT ) to $315 from $290 in light of the checks.

In addition, Ives noted that deal closure rates have improved since December and January to less than 10% for larger deals and that Microsoft ( MSFT ) could be in a position to take market share from Amazon ( AMZN ) AWS "over the next 12 to 18 months."

There have been spots of softness, particularly in the financial space, but federal deals look to be strengthening, as Amazon ( AMZN ), Google ( GOOG ) ( GOOGL ), Oracle ( ORCL ) and IBM ( IBM ) have also seen a "surge of Beltway cloud deal activity" this year as the federal government enacts a major shift to the cloud.

Ives also noted that ChatGPT is likely to be the "next leg of the growth stool" for Microsoft ( MSFT ), as artificial intelligence could add more to the company's story over the coming years.

"We continue to believe the first step for MSFT was Azure/Office 365 with the next step ChatGPT/AI monetization on both the consumer and enterprise fronts combined adding $20 per share to MSFT's sum-of-the parts valuation as this execution story plays out," the analyst added.

According to recent reports, it is expected that the U.K.'s antitrust regulator should issue its remedy working paper as part of its review of Microsoft's ( MSFT ) deal to buy Activision ( ATVI ) this week .

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