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Gaming is setting records, says Microsoft CEO
The CEO said Microsoft offers “the most diverse selection of AI accelerators,” including the latest from Nvidia (NVDA) Advanced micro devices (AMD) and its own first-party silicon.
“More than half of our Azure AI customers also use our data and analytics tools,” he says. “Customers build intelligent applications running on Azure, PostgreSQL and Cosmos DB with deep integrations with Azure AI.”
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Microsoft completed the acquisition of computer game maker Activision Blizzard for $68.7 million in October. Nadella said the company is “committed to meeting players where they are, bringing great games to more people on more devices.”
“We set records for game streaming hours, console usage and monthly active devices in the third quarter,” he said.
Several analysts responded to the earnings report by adjusting their price targets for Microsoft stock.
“With AI adoption accelerating cloud adoption and the outlook for Integrated Cloud margins remaining at high levels, profit generation at Microsoft should continue to grow,” said Chris Versace of TheStreet Pro. “That leads us to increase our MSFT price target from $450 to $480.”
Analysts at Bank of America Securities reiterated their buy rating and $480 price target on Microsoft, telling investors that “cloud and (artificial intelligence) continued to drive upside for Microsoft.”
“Microsoft’s native AI offerings (such as Azure AI or OpenAI services) continued to drive growth in the third quarter,” B of A said.
“Combined with the power of OpenAI consumption, Azure is the only software company benefiting from AI at this point in the cycle. This confirms our view that Microsoft remains at the forefront of this massive new cycle.”
Analyst calls ‘balanced beat’ at MSFT
The investment firm said it “continues to view Microsoft as a major beneficiary of AI, consolidation and cloud.”
“We believe the power of Azure is sufficient to drive total revenue growth higher for now (we are increasing our FY25E total revenue estimate by $1.4 billion),” B of A said.
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Macquarie analyst Frederick Havemeyer raised the company’s price target to $460 from $455 per share, while affirming an outperform rating on the stock, following what he described as “a balanced beat.”
While the third quarter of the fiscal year was only the second full quarter of results that included Activision Blizzard, the gaming segment continues to show signs of early benefits from the deal, with gaming revenue rising 51% year-over-year, according to the analyst , “led by strong Activision results.”
Havemeyer, who called Microsoft the company’s best generative AI choice. estimated Azure AI Services exceeded $4 billion in run-rate revenue.
He also said he was pleased to see signs that Copilot testing and adoption is making progress, and told investors that its key growth drivers, especially Azure and Gaming, continue to perform well.
Piper Sandler raised the company’s price target on Microsoft from $455 to $465, reiterating its overweight rating on the stock.
The investment firm attributed the target increase to strong AI and cloud secular tailwinds that accelerated Azure revenue growth by 31%.
The accelerating growth coupled with leadership’s commitment to maintaining an operating margin above 43% next year — during a peak in the capital spending cycle — reaffirmed Piper’s bullish stance on Microsoft, the analyst told investors in a research note.
Wells Fargo raised its price target on Microsoft from $480 to $500 and maintained an overweight rating on the stock.
Microsoft delivered “impressive” results, the investment firm said, with Azure bookings, margin increases and strong Al demand signals helping management provide guidance for double-digit revenue and operating profit growth early in fiscal 2025.
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