David Ramos
Microsoft (NASDAQ:MSFT) shares have it has fallen about 30% year-on-year as investors worry about the decline of the PC business, the most important part of the company’s Azure cloud is business investment. But when those stories can be saved investors on their toes, Morgan Stanley analyst Keith Weiss said Microsoft’s (Image of MSFT) “strong and sustained” demand in its retail businesses should help boost revenue and profit growth in the second half of next year, making the stock attractive for these quarters.
In the survey, Weiss said that Microsoft’s ( MSFT ) unique position as a one-stop shop should help demand win over other competitors. Weiss said one thing in Microsoft’s ( MSFT ) favor is that it has a “very competitive position” ahead of big opportunities in the software market.
“The company is looking to leverage existing investments to gain market share, win a larger share of IT spending as companies look to integrate vendors, and maintain long-term profitability,” Weiss said.
Weiss has a bullish and $307-a-share valuation on Microsoft (MSFT), or about 20% upside from current levels.
Weiss added that the strength of Microsoft (MSFT) has been that its position in the capital markets is still intact, and the company continues to move where it makes money from, including Azure and Dynamics 365. Combined with the growth of “long-term” Office 365, Weiss believes that this it should help Chief Executive Satya Nadella with the company’s goal of increasing revenue by 20% in its commercial businesses.
Going deeper, Weiss noted that Microsoft ( MSFT ) should continue to see strength in its retail businesses, as demand indicators remain positive. Weiss said evidence of this can be found in recent conversations with management, benefits reviews, performance checks and recent CIO surveys.
Weiss noted that Microsoft ( MSFT ) has seen “strong momentum” in machine learning, with revenue from Azure machine learning up more than 100% for the fourth quarter in a row. In addition, GitHub, which the company bought for $7.5B in 2018, now generates more than $1B in annual recurring revenue from more than 90M users.
Social media, LinkedIn, Groups and other social media platforms have also been strong in recent years, Weiss said.
There’s also the possibility that Microsoft ( MSFT ) could see an increase in revenue heading into the second half of 2023. Weiss said sales could accelerate as negative headwinds from overseas decline, price increases for Office 365 take effect, and more. businesses, including Windows, Office Commerce, LinkedIn and Dynamics, face easy comparisons, Weiss said.
There is also hope that operating expenses are expected to be “normal” in the second half of fiscal 2023, down to 8% per year, as the company recently suspended operations.
In July, Microsoft ( MSFT ) reportedly cut job listings in its Azure security division and shed 1% of its total workforce.
In October, more cuts were made, as Microsoft ( MSFT ) laid off nearly 1,000 workers across multiple divisions, including its Xbox division.
While everything may look good for Microsoft ( MSFT ), Weiss noted that there are some business concerns for the Redmond, Washington-based tech giant, particularly about its margins and revenue growth.
Although the company has cut its numbers in recent months, there is the possibility of a “larger than expected” run into the company’s second quarter, even as the economy weakens and investors focus on margins.
And with the recession comes the potential for sales to slow down, even though they’re all looking at a “sustainable” 20% revenue growth, Weiss added.
Last month, Microsoft ( MSFT ) announced its 68-cent-per-share quarterly dividend, payable on March 9 to stockholders since February 16.
