Shares of Microsoft (NASDAQ: MSFT) have declined 22.7% this year because of a broader market sell-off that saw an erosion in valuations for many stocks in the technology sector. Currently, the stock is hovering near its 52-week low of $241.51 with a closing price of $258.83 on Monday, July 25.
Meanwhile, Wedbush analyst Daniel Ives continues to be bullish about this technology bellwether with a Buy rating and believes that MSFT will weather the macro clouds well.
Microsoft is expected to announce its fiscal Q4 results on July 26. Let us look at the reasoning behind analyst Ives’ upbeat outlook on the stock.
Microsoft’s Q4 OutlookLast month, Microsoft lowered its guidance for Q4, citing a stronger dollar. Accordingly, the company expects to generate revenues in the range of $51.94 billion to $52.74 billion, versus its earlier estimate of generating revenues between $52.40 billion and $53.20 billion.
Analysts are expecting the technology giant to generate revenues of $52.37 billion at the higher end of its updated outlook for Q4.
Microsoft now expects its diluted earnings to range between $2.24 per share and $2.32 per share, up from the earlier guidance in the range of $2.28 per share to $2.35 per share. Meanwhile, Wall Street analysts are expecting Microsoft’s diluted earnings to come in at $2.29 per share.
By Ives’ estimate, Microsoft should still be able to hit the “overall headline numbers of $52.6 billion and $2.30 (diluted earnings per share) with the possibility of a slight upside given the cloud strength we picked up.”
Strength in Microsoft Azure’s BusinessThe top-rated analyst’s channel checks have indicated that Azure is growing at a rate of approximately 46% year-over-year, on a constant currency basis, and around 43%, accounting for exchange rate fluctuations.
Ives believes that MSFT’s performance in the cloud and commercial bookings business will be the key to “the stock's performance, in our opinion, moving forward.”
The analyst anticipates that currently, around 44% of enterprise workloads have migrated to the cloud, and this workload migration could be 70% by 2025. Ives expects that this trend could help MSFT tide over the near-term macroeconomic headwinds.
Moreover, according to Ives, Microsoft’s Azure and cloud migration appear “robust” and should grow above 40% next year.
Dismissing the macro volatility, Ives stated, “We believe 85%–90% of major cloud projects are already green-lighted for MSFT into the next year, which gives a very high level of visibility and confidence around cloud commercial growth.”
Wall Street’s Take on MSFTThe analyst has a price target of $340 on the stock, implying an upside potential of 30.6% at current levels.
Microsoft also scores a Strong Buy consensus rating based on 29 Buys and one Hold from other Wall Street analysts besides Ives. The average Microsoft price target of $342.51 implies an upside potential of 32.3% at current levels.
Bottom LineIt appears that even with the current macroeconomic volatility, Wall Street analysts’ bullish stance indicates that they expect the company’s Azure cloud business will help it sail through the uncertainty.
Microsoft scores a nine out of 10 on the TipRanks Smart Score system, indicating that the stock is highly likely to outperform the market.
The TipRanks Smart Score system is a data-driven, quantitative scoring system that analyses stocks on eight major parameters and comes up with a Smart Score ranging from 1 to 10. The higher the score, the more likely the stock will outperform the market.