Microsoft's Q2 EPS gets mixed reviews, prompts one downgrade on Azure worries

© Anthony Behar/Sipa USA via Reuters Connect Microsoft's Q2 EPS gets mixed reviews, prompts one downgrade on Azure worries

By Investing.com Staff 

Microsoft's (NASDAQ:MSFT) fiscal year 2023 second quarter earnings after the close are getting mixed reviews on Wall Street Wednesday morning. Several firms cut their price target following the print, several raised their price targets, and at least one firm downgraded the stock.

BMO Capital analysts downgraded shares to Market Perform from Outperform and lowered their price target to $265 from $267, citing the ongoing uncertainty on Azure. Until AzureAzure'sth stabilizes, the stock will be "range-bound," the analysts said. Azure represents about 31% of the firm's FY24 revenue estimates. The analysts said Azure likely over-earned for eight quarters from the September quarter of 2020 to the June quarter of 2022. They now envision Azure growth exiting FY24 in the mid-to-high teens versus their current estimate of 20%.

Raymond James analysts cut their price target for Microsoft to $270 from $280 but maintained an Outperform rating. The analysts cited the weak guidance in the More Personal Computing segment. "We still see a positive dynamic for Microsoft in terms of fundamental positioning, consolidating IT spend, and long-term cloud growth, but this quarter’s guide likely means that the debates around growth trends entering the report will remain outstanding," the analysts said.

Stifel analysts lowered their price target to $275 from $290 and comments that the results were "not as bad as feared," although they said there is "work to be done." The analysts maintained a Buy rating. "While Azure's +38% Y/Y-CC was modestly-better-than management's 37% Y/Y-CC guide, the 3Q Azure forecast (~26%/~30% Reported/CC) fell short of expectations as usage growth moderated during the quarter," the analysts commented. "We believe usage growth has been stable in January, but the print/guide/commentary will not do much to clarify the key debate...Where does Azure's growth rate stabilize? In an effort to effectively reset our model we are now forecasting future Azure growth of mid-to-low 20%."

On the more bullish side, Citi analysts reiterated a Buy rating and raised their price target to $282 from $280, on the "better than feared" Q2 and "de-risked" guidance. "The weaker outlook came on elevated cloud optimizations/slowdown in new business consistent with investor concerns," the analysts commented. "Ultimately guidance looks more conservative to us, particularly across Azure, Windows OEM, and opex, likely in an attempt to derisk FY23. Though difficult to call it the last cut (pending macro factors/recession risk), even on lower numbers, MSFT's consolidated revenue and EPS growth is beginning to accelerate from these levels, which we think can be a differentiator."

DA Davidson analysts also raised their price target on the Buy rated stock to $280 from $270. The analysts see the investment in OpenAI as a source of upside, and possibly a short-term catalyst.

Shares of Microsoft are down 2.6% as of 6:47 ET (11:47 GMT).