Microsoft (MSFT, Financial) is set to release its second-quarter earnings. Analysts at Bank of America have noted improved investor sentiment due to positive signals from Microsoft’s Azure and Office segments. The bank maintains a "buy" rating for Microsoft, with a target price of $510.
Analyst Brad Sills, after conducting a channel survey with key partners, anticipates healthy revenue growth for Azure and Office. However, he suggests that the results for this quarter are more likely to meet expectations rather than exceed them. Sills predicts a slight revenue increase of 0% to 1% above the expected $68.6 billion, driven by steady project migration to Azure and ongoing E3/E5 upgrades.
Azure's revenue is expected to grow by 32.5% year-over-year at constant currency, with artificial intelligence contributing 13 percentage points to this growth. Additionally, the company’s productivity and business processes segment, including Office 365, is projected to see an 11% increase in sales, also at constant currency, supported by a stable upgrade cycle and the momentum of Copilot.
Moreover, Sills indicates that Microsoft may raise its profit margin expectations for fiscal year 2025, propelled by AI advancements. The accelerated growth in core applications and infrastructure, along with improved profit margins, is leading to a steady rise in Azure's capital expenditure returns.
