Microsoft posted a solid quarterly earnings and revenue beat , but slowing growth in its Azure cloud computing business wasn’t enough to exceed investors’ lofty expectations, weighing shares down 12% on Thursday. However, Wall Street analysts criticized the sell-off. Microsoft’s earnings came in at an adjusted $4.14 per share, exceeding the $3.97 analysts polled by LSEG had expected. The firm posted revenue of $81.27 billion, also higher than the $80.27 consensus estimate. Microsoft’s current-quarter guidance also met LSEG consensus expectations. But shares were dragged lower after revenue from Azure and other cloud services grew at 39%, lower than the 40% growth from Microsoft’s fiscal first quarter. Analysts polled by StreetAccount and CBNC had respectively forecast this growth to come in at 39.4% and 38.9%. While analysts across Wall Street acknowledged this miss in cloud growth, they also remarked that market expectations appear too high. Morgan Stanley analyst Keith Weiss said that investors were “not seeing the forest for the trees” and that the stock’s “valuation appears to miss the bigger picture.” “The issue is that most investors focused on just one number, Azure growth, to judge the health of the MSFT business, especially around AI momentum,” wrote Barclays analyst Raimo Lenschow. Lenschow added that investors will have to “rethink” how they analyze Microsoft’s growth story from here, since the company will probably direct future excess capacity into CoPilot, its artificial intelligence chatbot, and its own AI R & D efforts. “Importantly, we’d highlight Azure is still growing well above the market, guided to sustain 37-38% growth in F3Q and we believe can likely persist near here for several more quarters off a higher base,” Deutsche Bank analyst Brad Zelnick added. Citi analyst Tyler Radke believes that Azure’s growth will likely accelerate after a “self-inflicted” slowdown, and also highlighted an acceleration in CoPilot’s momentum as a bright spot on the report. He noted that CoPilot added 15 million paid users, while the company’s bookings momentum also continued. Bottom line, analysts remained overwhelmingly bullish on Microsoft, although most trimmed their price targets on slightly lower estimates. Here’s how some of Wall Street’s biggest shops reacted to Microsoft’s latest report. Deutsche Bank: buy rating, $575 price target The bank’s price target, down from $630, implies about 19% upside from Microsoft’s Thursday close. “Microsoft reported another solid result for F2Q, but it ultimately fell short of more lofty market expectations, in particular for Azure growth. While most investors continue to hone in on this as the most important KPI, mgmt. again made it clear Azure is bearing the brunt of current supply constraints as they prioritize GPU allocation in support of AI usage in first-party apps and R & D to accelerate product innovation in pursuit of higher margin, recurring software opportunities up the stack.” Goldman Sachs: buy, $600 Goldman Sachs’ forecast, down from $655, corresponds to upside of 25%. “We believe the stock reaction reflects another consecutive quarter of higher-than-expected capex ($37.5bn, 9% above the Street including fin. leases) without a commensurate increase in Azure growth rates. However, we believe Microsoft prioritizing compute capex for first party applications (Copilot) and internal R & D (e.g. Microsoft AI) over short-term Azure revenue will ultimately drive more strategic AI positioning across multiple layers of the technology stack and better returns over the medium term, and maintain our Buy rating on the stock.” Barclays: overweight, $600 The bank lowered its forecast from $610. “The MSFT story will see a slight rethink post Q2. So far, AI momentum plus extra capacity drove higher Azure growth and hence, investors could get excited. However, MSFT is now using new capacity for more of its first-party offerings like Copilot, which means upside will need to show up differently … It now looks like the company will not really accelerate Azure further from here, due to the law of large numbers and extra capacity being used for its own, higher-margin, first party offerings like Co-Pilot and its own AI R & D efforts.” UBS: buy, $600 “Microsoft reported solid overall numbers (15% total c/c revs growth, 21% non-GAAP EPS growth), with the stock’s fade in the after-market likely a function of the lack of upside in both Azure (+38%, a shade below the 39% growth bogey) and the big M365 apps segment (+14%, in-line with the guide but below our 15% estimate). Microsoft allocated scarce GPU capacity away from Azure to 1P products, but the fact that BOTH Azure and the M365 segments fell a bit short is the key negative we’re hearing that is driving the modest after-market fade. That said, we conclude that the capacity outlook and pending backlog conversion look so compelling that we remain Buy-rated.” Citi: buy, $635 Citi’s target, lowered from $660, calls for 32% upside going forward. “We would expect the stock to trade lower as investors digest the negative revision trends but would be buyers of the pullback. We expect Azure growth to accelerate off Q2 levels (particularly as capacity continues to get stood up) and we view the modest guidance cut as one-time reset. We slightly lower our Azure numbers but still project a 40% exit rate and with shares trading at ~24x our revised FY27 P/E.” RBC Capital Markets: outperform, $640 The bank’s forecast implies that shares could rally 33% from here. “Microsoft delivered a solid quarter with revenue, EPS, and operating margins exceeding expectations, but results weren’t enough to clear elevated expectations, leading shares down 6% AMC. Azure growth of 39% YoY (38% CC) remained steady and in line with our sense of buy-side expectations, while operating discipline and efficiency gains helped offset higher Al infrastructure investment. With Al monetization broadening and much of incremental Al capacity already contracted, we see continued upside in growth and margins, and MSFT remains our top large cap pick.” Bernstein: outperform, $641 Bernstein’s forecast, down from $645, is 34% above Microsoft’s Wednesday closing price. “Microsoft delivered solid results and healthy guide, yet the stock was down ~6% aftermarket, as Azure growth (38% CC) slightly missed the buyside expectation. Management stated that Azure could have grown > 40%, but they are constrained by capacity and are prioritizing 1st party apps and R & D over near-term Azure growth. We think this is a hard but necessary decision for the company’s long-term value creation. Microsoft’s growth engine is in fact getting stronger.” Morgan Stanley: overweight, $650 Morgan Stanley’s target equates to 35% upside. “A $240B+ revenue base growing 15% YoY, with expanding op margins driving 21% cc EPS growth, while 39% YoY cRPO growth suggests even better growth ahead. Yes, Azure missed Street expectations by 1% point, but at 21X CY27 EPS, the valuation appears to miss the bigger picture. Remain firmly OW.”
