Microsoft Stock Is Powering the Market. The Company Sees Continued Double-Digit Growth.


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The best thing to happen to the stock market in a long, long time took place on the


June-quarter conference call, a little after 3 p.m. Pacific time on Tuesday.

That was roughly when Microsoft (ticker: MSFT) Chief Financial Officer Amy Hood launched into her quarterly discussion of the software giant’s outlook. In this case, since it was the start of a new fiscal year, she provided comments not only on the September quarter, but also on the company’s view of the June 2023 fiscal year.

Until that moment, Microsoft shares in late trading were bouncing around the flat line. The June-quarter results, while not as bad as feared, were a little lighter than expected, with both revenue and profits missing estimates. There also were some positive elements, including 46% growth in constant currency for Azure, the company’s public cloud business, and 33% growth in constant currency for both commercial bookings and the company’s overall cloud business. The cloud business is now on a $100 billion run-rate, and approaching half of the company’s overall revenue.

Hood then said on the call that Microsoft expects double-digit currency-adjusted growth rates for both revenue and operating income for fiscal 2023. In seconds, the stock jumped 6%, boosting the company’s valuation by more than $100 billion, in a flash. And investors smiled.

At that moment, investors in effect decided that when it comes to Microsoft shares, all of the recent drama around currency headwinds and softer macroeconomic conditions were simply short-term noise—and that the company’s long-term growth story remains intact. Wedbush analyst Dan Ives describes Hood’s comment as the “bullish guidance heard around the world.”

Now, to be clear, there was a lot of short-term noise, which Microsoft detailed in its earnings press release. In the June quarter, revenue were trimmed by about $1 billion by a combination of unfavorable currency-exchange rates, China supply chain disruptions, softer PC demand, slower ad spending, severance costs, and various expenses tied to the wind-down of business in Russia.

The market seems to be glossing over the fact that September-quarter guidance was actually not that great, with the “more personal computing” segment missing Street expectations at the midpoint of the guidance range by about $700 million. Overall, the company’s revenue forecast for the quarter at the midpoint of the range was about $1.5 billion below consensus, and down nearly $2 billion sequentially from the June quarter.

And yet, thanks to the strong full-year guidance and the strength of the cloud business, most analysts came away from the quarter feeling upbeat about Microsoft stock.

Evercore ISI analyst Kirk Materne noted that while there were “a lot of moving parts” to the June-quarter results and to guidance, when you strip away the currency noise, the underlying trends in the company’s commercial business remain sound. He asserts that Microsoft’s forecast for 43% growth in Azure in constant currency in the September quarter “illustrates the durability of the business,” and was better than feared. While softer PC demand and ad sales will remain near-term headwinds, he adds, the full year guidance “helps support the long-term bull thesis.” He keeps his Outperform rating on Microsoft stock and $330 target price.

William Blair analyst Jason Ader likewise repeats his Outperform rating on the shares. “We continue to view Microsoft as a must-own name for investors given its financial profile, ability to gain even more market share across a number of verticals, and the resiliency of demand for its major products, which have become essential utilities across all enterprises,” he writes. The strong fiscal 2023 guidance, he adds, is “a key signal to investors that…demand and visibility for Microsoft’s portfolio of solutions remains strong and resilient.”

Morgan Stanley analyst Keith Weiss writes that investors came away from the Microsoft quarter with “a credible outlook for double-digit revenue growth,” a management team actively focused on sustaining operating margins through a difficult macro environment, and a stock trading at less than 23 times forward GAAP earnings. “Adding a unique positioning as a haven within software (and realistically the broader market) to the attractive risk/reward already in the stock at current levels keeps Microsoft a top idea in software,” he writes. Weiss maintains his Overweight rating and $354 target price.

Stifel analyst Brad Reback stays bullish, too, repeating his Buy rating, though he trims his target price to $300 from $320. But he injects a note of worry into the otherwise celebratory mood on the stock, wondering if the guidance is a little overly aggressive, and does not contemplate any further deterioration in the economy. “Given the Fed’s desire to meaningfully slow the U.S. economy in coming quarters, we would have preferred to see management take a more-conservative revenue stance,” he writes.

Microsoft stock on Wednesday is 4.7% higher, at $263.64.

Write to Eric J. Savitz at

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