Key Takeaways
- Worries about Microsoft’s weaker-than-anticipated cloud growth and plans to raise investments in artificial intelligence weighed on its stock price after its latest earnings report.
- However, analysts said they remained bullish on the tech giant’s potential to gain from AI.
- Executives on Microsoft’s latest earnings call said capacity constraints held back its cloud growth, and that AI investments could lead to double-digit revenue growth as capacity catches up with demand.
Despite Microsoft’s (MSFT) earnings beat, worries about weaker-than-expected cloud growth and spending on artificial intelligence (AI) sent shares lower in the wake of the company’s quarterly update.
Bullish analysts say those concerns could be overblown, citing the company’s potential to gain from AI.
The tech giant’s shares lost a bit more than 1% to close at $418.35 Wednesday. The stock has gained over 11% since the start of the year. Analysts are broadly bullish on the shares, with a mean target price above $500 according to Visible Alpha.
Why Bulls Say Microsoft’s Results Reinforce Its AI Potential
Despite “a lackluster end to an otherwise strong” fiscal year, Mizuho analysts said they beleive Microsoft’s medium- and longer-term revenue growth opportunities are “greater than many realize,” citing opportunities in generative AI.
Deutsche Bank analysts wrote that Microsoft is “leading the charge” in AI monetization with its Azure AI services and revenue set to grow as the company raises capacity.
In Microsoft’s earnings call Tuesday, executives said capacity constraints played a key role in holding back the company’s cloud growth and suggested that it’s investments in AI could lead to double-digit revenue growth as Microsoft’s capacity catches up with surging demand.
That is part of what led Goldman Sachs analysts to call Microsoft “one of the most compelling investment opportunities” in tech, drawing a comparison between its current AI investments and the spending surge seen from 2010 to 2017 to build the cloud business that now drives earnings.
“The takeaways for the broader tech sector is this AI monetization story is real, ” Wedbush analysts said.