Microsoft Q3 Shines Light On 'AI Innovation Cycle': Analysts See 'Plenty Of Runway For Growth'

Technology giant Microsoft Corporation (NASDAQ:MSFT) reported third-quarter financial results that saw revenue and earnings per share beat estimates from analysts.

Analysts are praising the company's growth of artificial intelligence platforms.

The MSFT Analysts:

• Oppenheimer analyst Timothy Horan has an Outperform rating and price target of $450.
• Raymond James analyst Andrew Marok has an Outperform rating and raises the price target from $450 to $480.
• Goldman Sachs analyst Kash Rangan has a Buy rating and raises the price target from $450 to $515.
• Morgan Stanley analyst Keith Weiss has an Overweight rating and price target of $520.
• Wedbush analyst Daniel Ives has an Outperform rating and price target of $500.
• Bank of America analyst Brad Sills has a Buy rating and price target of $480.
• JPMorgan analyst Mark Murphy has an Overweight rating and raises the price target from $440 to $470.
• BMO Capital analyst Keith Bachman has an Outperform rating and price target of $465.
• KeyBanc analyst Jackson Ader has an Overweight rating and price target of $490.
• Stifel analyst Brad Reback has a Buy rating and raises the price target from $455 to $475.
• Truist analyst Joel Fishbein has a Buy rating and price target of $600.

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Oppenheimer on MSFT: Near-term demand for AI at Microsoft is ahead of capacity, Horan said.

The analyst said advantages for Microsoft are Azure, OpenAI and its strong network of users for Windows, Office, LinkedIn and Teams.

"The cloud industry is only 30% penetrated, growing 20% per year, and becoming increasingly concentrated, a critical productivity enhancer thanks to AI," Horan said. "Microsoft is especially well positioned for enterprise AI adoption to its large entrenched customer base and infrastructure."

Raymond James on MSFT: Momentum of Microsoft's Azure intensified in the third quarter, which was a key highlight for Marok.

"Azure continued to benefit from AI demand, which contributed to 7% of growth in the quarter and strength in Azure core, partially driven by acceleration in cloud migration and share gains," Marok said.

The analyst said guidance and gaming segment growth were stronger than expected.

"We continue to envision Microsoft as a leading beneficiary of GenAI, and expect its investment strategy to continue to pave the way for further share expansion across multiple business."

Goldman Sachs on MSFT: Durable top-line growth and margin stability were key highlights from the third-quarter results for Rangan.

"We see Microsoft offering a unique growth profile at their scale, with the ability to grow both top-line and EPS by double-digits in FY25," Rangan said.

The analyst said Microsoft is well-positioned to capture market share of Gen-AI revenue with its AI services and the build out of Azure.

Rangan said Azure could sustain 25% growth in fiscal year 2025 and sees the segment hitting $200 billion in revenue in fiscal year 2029.

Morgan Stanley on MSFT: Microsoft has an attractive risk/reward as a leading secular growth franchise, Weiss said in a new investor note.

"Commercial bookings and Azure both accelerating to 31% growth (constant currency) in Q3 provide the clearest evidence yet of Microsoft's leading position for AI driven direct revenues and increasing share of the broader IT budget," Weiss said.

Weiss said Microsoft is positioned to be the "clearest beneficiary of GenAI spend."

"With the AI innovation cycle just starting, we see plenty of runway for growth," the analyst said, adding that Microsoft could have Generative AI revenue of $67 billion to $117 billion by fiscal year 2029.

Wedbush on MSFT: The third-quarter earnings report from Microsoft was "another drop the mic moment" for the company, Ives said.

In a play on the 2024 NFL Draft, which also happened Thursday, Ives said it was a "great night for #1 AI draft pick."

"With MSFT's results acting as a barometer for cloud/AI spending, the company delivered another hall of fame performance quarter of robust results with beats on the top and bottom line," Ives said.

The analyst said Microsoft is positioned to capitalize on the AI Revolution into fiscal year 2025 with more use cases for its artificial intelligence technologies.  

Bank of America on MSFT: Cloud and AI were the key items that led to Azure upside for Microsoft in the third quarter, Sills said.

"We continue to view Microsoft as a key beneficiary of AI, consolidation, and cloud," Sills said.

The analyst said organic Azure AI offerings are gaining momentum including Azure AI and OpenAI services.

Sills said the strength of Azure is enough to drive total growth higher for Microsoft.

JPMorgan on MSFT: The inflection point of Azure has arrived, Murphy said after third-quarter results from Microsoft.

The analyst said commercial bookings growth for Microsoft were the strongest in six quarters.

"The strong upside surprise for Azure could suggest a resilient/better, though not perfect, infrasoftware spending environment," Murphy said.

The analyst said the results from Microsoft will be taken positively and could chip away at any key concerns investors have about the company.

"Overall, we think Microsoft continues to exhibit outstanding execution while simultaneously cementing its pole position as the AI leader and balancing profitability/growth trade-offs."

BMO on MSFT: The acceleration of Azure was the key highlight in the quarter for Bachman.

"MSFT's quarter was highlighted by Azure growth of 31% y/y, including 7 points from AI workloads, and a guide of 30% to 31% y/y growth, which we believe was a positive surprise vs. expectations," Bachman said.

Bachman called the revenue growth for Azure in the quarter "robust."

"MSFT has delivered upside to Azure growth in the past three quarters."

KeyBanc on MSFT: The Azure revenue beat was good in the third quarter and could have been even better, Ader said.

"Azure now joins the Oracle OCI camp with AI cloud demand outstripping what it can supply – holding in-period revenue growth back," Ader said.

The analyst said Office 365, which is another AI business, also showed signs of strength in the third quarter.

Highlights for Azure in the quarter included 65% of Fortune 500 companies using Azure AI and $100 million or more Azure contracts being up 80%, Ader said.

Stifel on MSFT: The third-quarter results were strong with revenue and earnings per share beats, Reback said.

"Results demonstrated Microsoft remains at the head of the AI-pack given its unique set of infrastructure/application assets that we expect to be a cashflow machine for years to come," Reback said.

Growth of Azure AI was a highlight for the analyst and non-AI Azure business also saw "greater-than-expected demand" in the quarter.

"Microsoft has refocused the company around Azure and Office 365, which we view as several large, multi-year secular growth engines that should help drive mid- to high-single digit Productivity and Business Process growth and low-double-digit Intelligent Cloud growth in coming years.

Truist on MSFT: Artificial intelligence powered the continued momentum for Microsoft in the third quarter, Fishbein said.

"We expect this durable growth in the segment cloud continue to drive upside to current expectations," Fishbein said.

The analyst said guidance from Microsoft could be conservative with multiple tailwinds and the ability to beat and raise with AI projects expanding.

MSFT Price Action: Microsoft shares are up 2.4% to $408.87 at the time of publication Friday, versus a 52-week trading range of $292.73 to $430.82.

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