Microsoft (NASDAQ: MSFT) is gearing up for its quarterly earnings release on October 30, but analysts at Piper Sandler warn investors to brace for a “mixed” outcome. The tech giant’s new key performance indicator (KPI) metrics, rolled out in August, could create “optical headwinds,” complicating the outlook for its core cloud business, Azure.
KPI Changes Impact Azure Revenue Forecasts
One of the biggest shifts is the removal of Enterprise Mobility & Security (EMS) from Azure’s Infrastructure-as-a-Service (IaaS) segment. Piper Sandler notes that this adjustment could make Azure revenue appear over 20% lower, despite no underlying change in operational performance.
“After pulling EMS out, our Azure FY24 forecast stands at $57.5 billion, representing 23% of total sales versus 31% prior,” the analysts wrote. While Azure’s growth rate is expected to hit 34% by the end of the quarter, the pace is likely to moderate, signaling potential challenges ahead.
AI Growth Remains a Bright Spot
Despite the KPI-related concerns, Microsoft is maintaining momentum in the artificial intelligence (AI) space. Piper Sandler remains bullish on the company’s AI ambitions, predicting AI-related revenue could exceed $10 billion by FY 2025.
Microsoft’s AI-powered Copilot tools have experienced a few adoption hurdles, but the firm remains confident, pointing to OpenAI’s triple-digit growth trajectory as evidence of continued innovation.
Piper Sandler adjusted its expectations for Microsoft’s fiscal 2025 and 2026 growth, lowering them from 13.4% to 12.3% and 14.1% to 12.6%, respectively. The analysts also flagged potential issues in Microsoft’s Productivity and Business Processes (PBP) segment, which generates over $100 billion annually, cautioning that seat-based growth may not be sustainable long term.
As a result, the price target for Microsoft stock was cut from $485 to $470, with the analysts citing potential “sloppy” Q1 results. Despite this cautious outlook, Piper Sandler maintained its Overweight rating, underscoring Microsoft’s first-mover advantage in AI and strong annual cash flows of $115-$120 billion as key strengths.
Should You Buy MSFT Stock?
While some analysts express concerns about Microsoft’s short-term revenue optics, the long-term fundamentals remain solid. AI innovation continues to be a key driver, and robust cash flows ensure that Microsoft can fund growth initiatives and return value to shareholders.
With the stock market flooded by competing opinions, it’s essential to focus on the fair value of MSFT shares rather than short-term noise. Whether you’re a long-term investor or looking for tactical trades, Microsoft’s AI prospects and strategic cloud adjustments make it a stock worth watching. But keep an eye on October 30—the market reaction could go either way.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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