Microsoft (MSFT) produced year-over-year revenue growth of more than 18% for the second consecutive quarter as analysts point out the company’s buildout of more artificial intelligence capacity is a sign of accelerating Azure growth.
Virtually all major financial firms reiterated their Overweight or Buy ratings on the stock and view any pullback as a buying opportunity following the tech giant’s first-quarter financial results.
Shares were down 2% during early trading on Thursday.
“Commercial bookings growth of 111% YoY & 51% RPO growth highlight strong demand trends; Azure growth of 39% cc beat 37% guide, but missed 40% buyside expectations,” said Morgan Stanley analysts, led by Keith Weiss, in a Thursday investor note. However, “a focus on Azure growth 1 point shy of the expectations in a supply-constrained environment seems to miss the point—growth is accelerating. We would be aggressive buyers on any pullbacks.”
Morgan Stanley reiterated its Overweight rating and increased its price target to $650 from $625.
“Azure AI services revenue was generally in line with expectations, and this quarter, demand again exceeded supply across workloads, even as we brought more capacity online,” said Microsoft CFO Amy Hood during the Q1 earnings call.
J.P. Morgan also reiterated its Overweight rating and nudged up its price target to $575 from $565.
“Our impression is that some subset of investors, perhaps overly hopeful, were anticipating a continuation of super-elevated Azure upside and potentially expecting Azure CC growth of 40-41% in Q1, and/or factoring in easier y/y growth comps in FQ2 as potentially paving the way for stronger Azure guidance,” said J.P. Morgan analysts, led by Mark Murphy, in a Thursday note.
“Even if there are some short-term blips that are mildly disappointing to certain investors, the longer-term outlook appears to be intact, and we applaud Microsoft’s focus on fungibility, disciplined execution, and thoughtful business decisions, which in our view are evident in 23% y/y Operating Income growth,” he added.
Microsoft’s renewed deal with OpenAI (OPENAI) should also help sort out debates about the relationship between the two companies.
“That debate was largely resolved with the announcement yesterday of the renewed OpenAI partnership, which includes a $250bn commitment to Azure and continued AI exclusivity, reaffirming Microsoft’s central role in the buildout and commercialization of AI,” said Bank of America analyst Brad Sills in a note.
BofA reiterated its “top pick” Buy rating and its $640 price target.
“Our takeaway is that even with supply chain constraints, Azure’s growth rate is comfortably in the high 30s,” Sills said. “With the new OAI deal coming online as early as Q2FY26 and easing supply chain constraints into FY27, we see pathways to Azure growth reacceleration.”
Meanwhile, Wedbush also hyped the stock, believing it will be the next company to join Nvidia (NVDA) in the $5T market cap club.
“This was another solid quarter by Nadella & Co. putting the company well on its way to join the $5 trillion club over the next 18 months with the AI Revolution still in the early innings of playing out with Microsoft hitting its next phase of monetization on the AI front,” said Wedbush analysts, led by Daniel Ives, in an investor note. “We believe that any knee-jerk reactions represent strong buying opportunities.”
Wedbush reiterated its Outperform rating and $625 price target.
Other major cloud service providers were showing mixed reactions during early Thursday trading. Amazon (AMZN) had declined 1.3%, while Google (GOOG)(GOOGL) had jumped 7.6%, Oracle (ORCL) had slipped 1.7%, while CoreWeave (CRWV) had declined 3.6%. Nebius (NBIS) had slid 3.3%.