Tech giant Microsoft (NASDAQ:MSFT) is scheduled to announce its fiscal fourth-quarter results on Tuesday, July 25, after market close. Investors and analysts are eager to see how much the company is benefiting from the AI-related boom and the trend in Azure’s growth rate, which has been decelerating in recent quarters due to macro pressures. Investors are also interested in hearing the management’s commentary on the Activision deal. Wall Street seems bullish ahead of the upcoming results.
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Expectations from MSFT’s Fiscal Q4 Results
Microsoft surpassed analysts’ earnings expectations in the first three quarters of Fiscal 2023. In Q3 FY23 (ended March 31, 2023), the company’s earnings per share (EPS) grew 10% year-over-year to $2.45, easily exceeding analysts’ consensus estimate of $2.22. Revenue grew 7% to $52.9 billion.
However, revenue from Azure and other cloud services grew 27%, marking a slowdown compared to the 31% growth in the prior quarter. Enterprises are optimizing their IT spending due to macro challenges, thus impacting Azure and other cloud providers.
Coming to Q4 FY23, analysts expect EPS to grow 14.3% to $2.55, driven by about a 7% rise in revenue to $55.5 billion and improved margins.
On Friday, Goldman Sachs analyst Kash Rangan reiterated a Buy rating on MSFT and increased the price target to $400 from $350 after the company announced pricing and other details related to its Microsoft 365 Copilot offering.
Rangan noted that Microsoft 365 Copilot will be launched into a base of over 380 million users for $30 per user per month. He estimates the product to have a total addressable market of more than $135 billion over the long term, of which he expects MSFT to capture 15-30% by FY26, assuming a mid to late FY24 launch.
Meanwhile, Rangan anticipates the sequential deceleration in Azure’s growth to stabilize, as the “impact of optimization trends plateau and Gen-AI workloads are added.” He projects Azure revenue to grow 27% in cloud computing in Q4 FY23. Additionally, the analyst expects Microsoft’s Q4 FY23 revenue and EPS to increase by 8% and 18%, respectively.
Rangan thinks that Azure may beat expectations by about 100 basis points, given that channel conversations suggest that the demand for new offerings (like Azure OpenAI Services and GitHub Copilot) has surpassed estimates.
Technical Indicators Ahead of Microsoft’s Fiscal Q4 Earnings
Ahead of the Q4 FY23 earnings release, technical indicators reveal that Microsoft is a Buy. According to TipRanks’s easy-to-understand technical tool, MSFT’s 50-Day EMA (exponential moving average) is 329.83, while its price is $343.77, making it a Buy. Further, MSFT’s shorter duration EMA (20-day) also signals an uptrend.
Is Microsoft a Buy or Sell Right Now?
Microsoft shares have rallied over 44% year-to-date, reflecting investor optimism about the company’s growth opportunities in the generative AI space. Earlier this year, the company confirmed that it is investing billions of dollars in start-up OpenAI’s ChatGPT tool.
With 31 Buys, two Holds, and one Sell, Wall Street has a Strong Buy consensus rating on Microsoft stock. The average price target of $378.47 implies nearly 9.7% upside.
Insights From Options Trading Activity
TipRanks now presents options activity, to help investors plan their trades ahead of earnings releases. Options traders are pricing in a 5.59% move on Microsoft earnings. The stock has averaged a 2.2% move in the last eight quarters.
The anticipated move is determined by computing the at-the-money straddle of the options closest to the expiration after the earnings announcement.
Learn more about TipRanks’ option tool here.
