Microsoft shares are rising Wednesday following a strong earnings report.
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Tech investors are likely breathing a sigh of relief on Wednesday.
Sure, the Nasdaq Composite index, a proxy for U.S.-listed tech stocks, remains down more than 14% this year, firmly in correction territory. But there was good news from Microsoft (ticker: MSFT) late Tuesday, and there’s no doubt that’s helping sentiment, with the Nasdaq on track to open almost 2% higher Wednesday.
The software giant reported quarterly revenue of $51.7 billion, up 20% from last year’s levels and above the $50 billion milestone for the first time. Earnings per share were up 22% to $2.48, outpacing Wall Street’s expectations for $2.31 a share.
While the market’s reaction was initially muted, and the stock first dropped in after-hours trading, Microsoft shares later jumped and are now up 3.7% in premarket trading Wednesday. For that, investors can thank a strong outlook for the March quarter detailed in the company’s earnings call.
“We think investors were reassured, with leading indicators accelerating including commercial bookings strength, and the outlook for faster Azure revenue growth next quarter,” said Tyler Radke, an analyst at Citi. “The megacap continues to deliver impressive double-digit revenue and net income growth at scale.”
Radke rates Microsoft at Buy with a target price of $386, implying some 33% upside.
“We continue to rate Microsoft as our top megacap,” the analyst added. “We see the company’s double-digit growth formula as distinguished and defensive.”
The stock market, as well as some specific stocks, may ride Microsoft’s coattails higher.
Wall Street was looking for strong results from Microsoft, and they got it in spades. The tech sector has been beaten down this year, and analysts identified Microsoft—the first tech giant to report this earnings season—as being critical for setting the tone.
While Microsoft’s upbeat guidance was a shot in the arm for Wall Street, the details of its earnings also boosted sentiment for its peers in enterprise software and cloud computing.
Some analysts have suggested that software sales could slow down into 2022, especially in the enterprise segment, with spending from companies trickling off as working from home begins to be less permanent.
What Microsoft showed instead was that companies are expected to continue spending on software and that Azure, its cloud computing platform, will grow even faster.
Radke said there were positive signs in Microsoft’s earnings—specifically, the strength in bookings—for peers in enterprise software and cloud computing.
In enterprise, those names are ServiceNow (NOW), Teradata (TDC), Ansys (ANSS), Informatica (INFA), and Nice Systems (NICE). In cloud, Radke highlighted Datadog (DDOG), MongoDB (MDB), Elastic (ESTC), Snowflake (SNOW), Confluent (CFLT), and HashiCorp (HCP).
Write to Jack Denton at [email protected]
