Wall Street is expecting Microsoft's sales and earnings growth to slow when it reports December-quarter results late Wednesday. But Microsoft stock analysts are counting on an improvement in the March quarter with a reacceleration in its Azure cloud computing business.
Analysts polled by FactSet expect Microsoft earnings of $3.11 a share on sales of $68.9 billion in its fiscal second quarter. That would translate to year-over-year growth of 6.1% in earnings and 11.1% in sales. It also would mark its slowest earnings growth in eight quarters and slowest sales growth in six quarters.
Analysts see Microsoft's Azure cloud computing infrastructure business growing revenue at 30.2% year over year in the December quarter, down from 31.1% in the September quarter. On a constant currency basis, Azure revenue is seen rising 32%, vs. 34% in the September quarter.
However, for its fiscal third quarter, Microsoft's Azure revenue is forecast to rise 31.7%, or 33.4% in constant currency. The Azure business should be helped by more data center capacity coming online, analysts say.
For the March quarter, Wall Street is modeling Microsoft earnings of $3.16 a share, up 7.5%, on sales of $69.8 billion, up 12.8%.
Microsoft stock has been consolidating for the past 29 weeks with a buy point of 468.35, according to IBD MarketSurge charts. That buy point is also its all-time high, reached on July 5.
On the stock market today, Microsoft stock slid 0.6% to close at 444.06.
Microsoft Stock Sentiment Rising
Sentiment in Microsoft stock is improving as it benefits from its investments in artificial intelligence in both cloud computing infrastructure and in software applications, BofA Securities analyst Brad Sills said in a client note Tuesday.
Sills has a buy rating on Microsoft stock with a price target of 510.
"We expect Q2 results to drive better sentiment on the shares, given a likely Q3 Azure outlook for accelerating growth," Sills said. "Also, we think the company is likely to raise the fiscal 2025 margin outlook. Microsoft typically updates the full-year margin outlook in Q2."
Elsewhere on Wall Street, Jefferies analyst Brent Thill on Wednesday reiterated his "top pick" buy rating on Microsoft stock with a price target of 550.
Microsoft has positioned itself as a "key beneficiary" of the generative AI megatrend thanks to its partnership with ChatGPT creator OpenAI and its investments in data centers and Copilot AI applications, Thill said in a client note.
"While we are in the early innings of AI adoption, we continue to be bullish on Microsoft's Copilots' ability to drive revenue uplift in calendar 2025 and beyond," Thill said. "We highlight that enterprise adoption continues to build as enterprises start going from pilots to mass rollouts."
Traction Elusive For Copilot Services
Other analysts are more cautious on Microsoft and its prospects for monetizing AI.
In a client note Thursday, Guggenheim analyst John DiFucci kept his neutral rating on Microsoft stock.
Investors want to hear more about traction for Microsoft's Copilot AI services, which "has been elusive so far," he said. The slow adoption of Copilot services was signaled by Microsoft's move to bundle it with Microsoft 365 and raise prices rather than continuing to sell Office Copilot features as an add-on service, he said.
TD Cowen analyst Derrick Wood concurred in a report Thursday.
"While the new approach should help drive broader adoption, it does signal that its original pricing/packaging strategy has struggled to gain adoption and that it will likely take more time for GenAI to help bend the growth curve for M365," Wood said. He rates Microsoft stock as buy with a price target of 475.
Microsoft stock is in the IBD Long-Term Leaders Portfolio.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
