Microsoft (MSFT) is poised for a “healthy expansion” in fiscal 2024 operating margins after Q2 results topped forecasts with a boost from artificial intelligence, strong execution, and cost discipline, Morgan Stanley said Wednesday in a report.
“Q2 results well illustrated Microsoft’s leading position in GenAI and unique ability to monetize this technology,” the investment firm said. On Tuesday, Microsoft reported Q2 earnings of $2.93 a share on revenue of $62.02 billion. Analysts polled by Capital IQ expected EPS of $2.77 on revenue of $61.13 billion.
Morgan Stanley said Microsoft Azure posted a 28% growth in constant currency in Q2 with AI contributing “a remarkable” 6%. The EPS beat occurred amid hurdles related to accounting and AI investments, and mergers and acquisitions.
The company’s Q3 gross and operating margin guidance stood “significantly ahead of expectations,” and Morgan Stanley said Microsoft’s solid execution, expense optimization and position in the GenAI innovation cycle continue to support its 8% compound annual growth rate estimate for EPS through fiscal 2026.
Morgan Stanley maintained its overweight rating on Microsoft and boosted its price target to $465 from $450.