By Michael Elkins
Wedbush reiterated an Outperform rating on Microsoft (NASDAQ:MSFT) and raised their price target on the stock to $315.00 (From $290.00) following positive Azure checks on Redmond in the field.
Microsoft remains firmly on the Wedbush Best Ideas List following recent checks in the field. The checks have been positive around overall cloud deal flow and momentum for Redmond in the March quarter, despite Street fears with Wedbush’s analysis that Nadella & Co. should be able to at least hit the low 30% Azure growth for the quarter.
Wedbush analysts wrote in a note, “Clearly Microsoft's stock has been on a tear so far in 2023 as we believe investors are starting to slowly appreciate that still less than 50% of the workloads have moved to the cloud and Redmond remains in an enviable position to gain share in its enterprise backyard against AWS in this cloud arms race over the next 12 to 18 months. We believe 90%+ of Azure/Office 365 large deal activity is still on track through our MSFT partner checks for the June quarter with modest push-outs and downsizing of major cloud projects seen in the field containable thus far. We acknowledge that some larger cloud deals from the financial vertical could clearly get downsized as data center projects get curtailed in this more scrutinized IT budget backdrop. However, federal deals are seeing the opposite impact as MSFT as well as cloud brethren Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL), Oracle (NYSE:ORCL), and IBM (NYSE:IBM) are seeing a surge of Beltway cloud deal activity in 2023 with a major shift to cloud underway from the Pentagon to civil agencies in the 202 area code.”
Wedbush’s thesis remains that the cloud and underlying Office 365/Windows ecosystem is going to comprise a bigger and bigger piece of Redmond going forward and will ultimately spur growth and margins into FY23/FY24 despite this downturn.
“We also believe Redmond is just starting to hit its next gear of growth with ChatGPT and AI also adding a new layer of growth to the MSFT story over the coming years.” the analysts wrote. “We continue to believe the first step for MSFT was Azure/Office 365 with the next step ChatGPT/AI monetization on both the consumer and enterprise fronts combined adding $20 per share to MSFT's sum-of-the-parts valuation as this execution story plays out.”
Shares of MSFT are up 0.8% in premarket trading on Wednesday.