Microsoft’s (MSFT) cloud migration deals and contribution from artificial intelligence could help push fiscal second-quarter revenue above expectations, BofA Securities said on Tuesday.
The brokerage reiterated a buy rating and $510 price target on the stock. The technology giant is scheduled to report second-quarter results on Jan. 29.
Upside of up to 1% could be at play for BofA Securities’ revenue estimate of $68.6 billion, which implies year-over-year growth of about 10% at constant currencies, according to the research note. The consensus on FactSet is for revenue of $68.9 billion.
Industry conversations suggested “solid, stable Azure activity led by cloud migration deals” and momentum within Microsoft 365’s AI-powered tool Copilot, according to analyst Brad Sills. The latter could spur upgrade cycles for Microsoft’s E3 and E5 enterprise plans, with companies needing to adopt necessary security features, he said.
The momentum could drive 11% year-over-year growth in Microsoft’s productivity and business processes division in an upside case, or 10.5% in a base case, Sills wrote. Azure growth is seen at 32.5% year over year in an upside scenario, with 13% coming from AI, versus BofA’s base case that calls for Azure growth of 31.5%.
BofA Securities’ model assumes M365 Copilot revenue of $750 million at a 5% penetration rate for E3 and E5. However, some partners suggest that penetration rates could be as high as 10%, he said.
Sentiment is expected to continue improving the second half of the year, with an expected Azure acceleration and improved margin outlook, according to the note.