We’re well into the first earnings season of 2024, and in the middle of a busy week. Several tech giants have either reported or will report this week, and there will be plenty of data for investors to get their teeth into.
For now, the NASDAQ index is down over 2% on the day after two mega-cap tech stocks reported results. The results, from Microsoft (NASDAQ:MSFT) and Advanced Micro Devices (NASDAQ:AMD), beat expectations, but also failed to impress investors when it came to the outlook.
It raises the question: should investors buy into these tech giants, now that the earnings results are in?
That’s not necessarily a question we can answer, but we can turn to the Wall Street analysts for insights and recommendations. These experts have been closely monitoring these companies and their performance, and their analyses can offer valuable guidance to investors seeking to make informed decisions.
So let’s open up the TipRanks database and find out what Wall Street thinks of Microsoft and AMD now that the earnings are released.
AMD
In the dynamic realm of silicon semiconductor chips, AMD has emerged as a longstanding industry leader. The company currently boasts a market capitalization of $276 billion and is a perennial member of the industry’s top ten largest firms. AMD’s product portfolio includes high-performance chips capable of powering the new generative AI technology that has been transforming the computing world even as we watch.
Prominent among AMD’s AI-capable chipsets are its Instinct GPU accelerators, the Alveo Adaptive accelerators, and the EPYC server processors. The company’s top chipsets include its Ryzen AI mobile processors and its Versal AI core adaptive SoCs. These various product lines are found in a wide range of applications, from data centers to gaming to supercomputers, all of which make extensive use of AI. The bottom line for AMD is speed – its chip and accelerator products are capable of the processing speeds that generative AI requires.
The big news on AMD was the January 30 release of its quarterly financial results for the fourth quarter and the full year of 2023. The company reported $6.2 billion in quarterly revenue and a non-GAAP diluted EPS of 77 cents per share. The revenue total was up 10.7% year-over-year and beat the forecast by $60 million; the EPS was in line with expectations. For the full year, AMD’s top line came to $22.7 billion, and earnings were reported as $2.65 per share by non-GAAP measures.
Looking ahead, the company predicts revenue of $5.4 billion, with a $300 million leeway up or down, for 1Q24. This guidance disappointed investors as it came in below the $5.75 billion consensus expectation. Shares in AMD slipped 2.5% in the wake of the earnings release.
Covering AMD for Rosenblatt, 5-star analyst Hans Mosesmann still describes the stock as a strong pick. He notes that AMD has been executing well, and goes into detail on the company’s prospects for this year.
“AMD’s fourth quarter of 2023 showed a slight upside, led by strong data center performance, particularly in server CPUs and MI300 GPU sales, which helped counterbalance weaker results in gaming consoles and the embedded segment. The first quarter of 2024 is projected to align with consensus expectations, but embedded and gaming are anticipated to be significantly weaker, particularly in the first half of the year. Despite a lower than speculated target for MI300 sales, AMD’s execution in key areas like data center and client CPUs, along with its emerging AI acceleration roadmap, positions the company well for capturing market share in the burgeoning AI sector. The embedded segment is expected to recover in the second half of 2024, and the game console cycle’s end phase is seen as a marginally positive factor. AMD remains a strong pick for 2024,” Mosesmann opined.
Mosesmann uses this stance to back up his Buy rating on AMD shares, while his $250 price target points toward a robust 49% increase for the stock over the next 12 months. (To watch Mosesmann’s track record, click here)
This tech giant, like most of its peers, has picked up a lot of attention from Wall Street, and has 35 recent analyst reviews on file. These include 28 Buy ratings and 7 Holds (i.e. neutral), for a Strong Buy consensus rating. The shares are selling for $167.69, and their $187.21 average price target suggests a one-year upside potential of ~12%. (See AMD stock forecast)
Microsoft
We’ll now turn to Microsoft, one of the ‘Magnificent 7’ tech leaders – and currently the world’s largest publicly traded company, with a market cap value of $2.95 trillion. Microsoft is a leader – arguably the leader – in the world of personal computing, and its Windows operating system and Office software package have long dominated their respective sectors.
Over the past decade or so, the company has been expanding outside of its original expertise, applying its know-how to new areas of the computing industry. As a result, Microsoft’s Azure cloud platform is fast becoming another essential business computing product. Azure includes more than 200 products, tools, and services, available by subscription on the cloud platform, and it has in recent quarters become one of the main drivers behind Microsoft’s revenue growth.
As noted above, AI is currently the power behind the tech world’s expansion – and Microsoft is positioning itself near the front of that wave. The company is a major backer of OpenAI, which set off the current round of interest in generative AI with the November 2022 launch of ChatGPT. In addition, Microsoft is integrating AI tech into its own products, including some of the Azure tools, and is introducing a generative AI user assistance application, the Copilot.
The upshot of all of this is that Microsoft reported revenues and earnings both above expectations in its financial release yesterday. The release, which covered Q2 of fiscal year 2024, showed a top line of $62 billion, up almost 18% year-over-year and some $890 million better than had been anticipated. The company’s bottom line EPS, reported as $2.93 per diluted share in non-GAAP measures, was 16 cents per share above the forecast.
The strong revenue performance was supported by Microsoft’s Intelligent Cloud segment, which was up 20% year-over-year to $25.9 billion. This solid result was driven largely by strength in Azure, which was up 30% from the prior year. The Intelligent Cloud revenue was well above the $25.4 billion that marked the top of the expected range.
Looking ahead, Microsoft gave fiscal Q3 revenue guidance of $60 billion to $61 billion, with Microsoft Azure remaining stable quarter-to-quarter. This guidance was seen as somewhat disappointing and comes in just below the $61 billion consensus.
Morgan Stanley analyst Keith Weiss, who is rated by TipRanks in the top 1% of Wall Street’s stock analysts, covers Microsoft – and he sees the company primed for further gains despite the soft guidance.
“The yields on Microsoft’s investments in Generative AI are becoming increasingly apparent, both in terms of direct monetization and driving further IT wallet share gains for the broader portfolio. This prime position for the upcoming GenAI innovation cycle, matched with solid execution and best-in-class expense optimization, well supports our forecast of an 18% EPS CAGR through FY26. Shares trading at 27X our CY25 GAAP EPS (a 1.5X PEG) fail to reflect Microsoft’s strong positioning and durable EPS growth potential,” Weiss opined.
Quantifying his stand on MSFT, Weiss rates the shares as Overweight (i.e. Buy), with a price target of $465 to indicate room for a 17% upside in the coming months. (To watch Weiss’s track record, click here)
The Morgan Stanley view here is in-line with the Street’s overall outlook on Microsoft. The stock has a Strong Buy rating based on a unanimous 31 positive analyst reviews. The average price target of $443.20 suggests an 11% upside from the current share price of $397.58. (See MSFT stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
