Wall Street was divided in its reaction to Microsoft’s fourth quarter earnings report. It reflected a split between optimistic optimism and cautious doubt.
Tech giant reports earnings per share at $2.95, slightly higher than expected, with revenue up 15.1% year over year to $64.7 billion.
What say the analysts?
Wedbush Securities’ analyst Dan Ives has maintained an outperform rating on Microsoft and set a price of $550. He praised the conference call for “validating” AI monetization, especially with Azure predicted to increase growth in the second half of this year.
Ives cited Microsoft’s solid commercial bookings as well Azure’s robust growth baseline as indicators of continued momentum.
Citi analyst Tyler Radke, on the other hand, offered a measured view, recognizing a “skinny EPS/revenue beat”, while noting Azure’s slowdown and a weaker than expected guidance for next quarter.
Radke, despite these concerns, remained positive about AI and commercial bookings, maintaining his Buy rating, but slightly decreasing his price target from $520 to $500.
Radke said that near-term revisions to estimates could be negative. However, he thought any weakness was temporary, and would be bolstered with solid leading indicators.
Brad Sills, of Bank of America, also predicted a positive future. He noted that Azure’s anticipated acceleration in the second half indicates that current weakness should only be temporary.
Sills highlighted the strengths of Microsoft AI services in Azure, and how the company can leverage its platform to reduce capital expenditure pressures.
The updated forecast of capital expenditures for fiscal year 2025 has increased to $58.3 from $53.8, a result of anticipated revenue growth.
Jackson Ader, KeyBanc Capital Markets analyst, focused on Azure’s current constraints in terms of capacity and capital expenditure. He suggested that, while they might present challenges, Microsoft has the flexibility it needs to effectively manage its growth trajectory.
Ader reiterated a rating of Overweight and set a price target at $490, confident in Microsoft’s ability to effectively manage its spending as the company scales.
Earnings for Q2 in Detail
Microsoft’s Q4 FY2024 performance paints a complicated picture of an industry giant navigating rapid innovation, expansive growth and heightened expectations in a turbulent market.
Microsoft’s growth can be attributed to its diverse business model. Its Productivity and Processes for Business, Intelligent Cloud and More Personal Computing segments all contribute significantly.
The Intelligent Cloud segment (which includes Azure’s cloud platform) reported an impressive 21% growth year over year, although slightly lower than expected.
Azure’s impressive growth of 29% over the past year has slowed down from prior quarters.
Azure is still a key part of Microsoft’s strategy for growth, especially as it continues to add AI features across all its products.
Microsoft is a financial powerhouse. It generated $37.2 billion of cash from operations during the fourth quarter and $23.3 in free cash flows.
Dividends and stock repurchases totaling $8.4 Billion are the company’s evidence of its disciplined capital return approach.
A closer look at the numbers reveals that there is a shrinking difference between operating costs and revenue growth, which has some worried about margin expansions in future. The management’s FY2025 guidance, however, is reassuring, as it projects double-digit revenue increases against the backdrop of a single-digit increase in operating costs.
Microsoft’s valuation is on the rise
Microsoft’s P/E forward ratio is 35.39. This value is slightly higher than the five-year median and sector average.
The market has high expectations for cloud computing, AI and growth.
Strategic investments by the company in these fields, such as a substantial increase in CAPEX, aim to boost long-term business growth, but they also carry risks, if returns are not met.
Microsoft stock fell over 3% in the pre-market today despite its strong financials.
The market is likely to be concerned about the future sustainability of growth in spite of aggressive capital expenditure.
Microsoft also provided cautious guidance on the first quarter’s revenue, estimating that it would be in the range of $63.8 to $64.8 billion. This was slightly lower than analysts’ estimates.
After analyzing Microsoft’s earnings for Q4 and the analysts’ opinions, it’s time to move on to an analysis of its share performance.
The analysis will look at recent trading volumes and price changes, which is crucial to answering the question: Should one consider selling their Microsoft Q4 holdings, or should they see it as an opportunity for buying more?
Has the rally reached its end?
Microsoft stock is on a steady upward trend since 2023. It has doubled in value.
This strong upward trend appears to be ending as the stock has dropped over 10% since the highs of earlier in the month.
The daily chart shows that the stock will open below the long-term trendline of bullish movement.
TradingView MSFT Chart
Bulls are advised to be cautious, as the nearest support level for the stock is $388. Below this point the stock could enter into a downward trend or a period of range-bound movement.
Bullish positions should be taken only if the price bounces and closes over its 50-day average. This is currently at $439.0.
This shift in momentum can be used by bearish traders to short the stock, but they must first analyze the behavior of the stock after it opens today.
They can sell the stock at $432 with an initial target profit of $388.
The Wall Street analysts have mixed opinions on Microsoft’s Q4 earnings. Should you buy or sell? This post may change as new information unfolds
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