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Microsoft Corp. grew revenue more slowly than the overall software sector in the company’s last fiscal year. The trend could be about to flip.
That’s the view of HSBC Securities analyst Stephen Bersey, who upgraded Microsoft’s stock
MSFT,
to buy from hold in a Wednesday note to clients.
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“With PC sales and gaming revenue inflecting and MSFT benefitting from a compelling [artificial-intelligence] product portfolio, we expect MSFT to outperform on revenue growth against the sector,” he wrote.
Bersey thinks that Microsoft can accelerate its revenue as it benefits from AI spending trends.
“Operating strength was apparent across the company’s cloud products and infrastructure offerings in the quarter; however, Azure cloud infrastructure was particularly strong,” Bersey said in summarizing the company’s Tuesday afternoon earnings report. “We think that the company is benefiting from a material uptick in global customers investing in AI projects and that Azure is a platform of choice.”
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The AI uplift could extend beyond Azure—and last a long time.
“We think that cloud and AI are strong cycles to which investors should consider exposure and that Microsoft has high exposure to both of these fast-growing subsectors,” Bersey added. “Moreover, we think that these cycles are poised to be a tailwind for the decade and think that many different product lines within Microsoft’s large portfolio are poised to benefit, not just Azure and Office.”
He also likes the company’s expense discipline, as headcount at the end of the latest quarter was down 4% from a year earlier. Operating margins are benefiting from the focus on costs, Bersey noted.
He upped his price target on the stock to $413 from $347 in Wednesday’s note, with the new target implying 24% upside.
