Microsoft ’𝙨 𝙀𝙖𝙧𝙣𝙞𝙣𝙜𝙨: 𝘽𝙧𝙚𝙖𝙠𝙤𝙪𝙩 𝙤𝙧 𝘽𝙧𝙚𝙖𝙠𝙙𝙤𝙬𝙣?

🐂 Wall Street has positioned itself at an incredibly bullish stance ahead of Microsoft’s earnings release later today with over 90% of covering analysts listing Microsoft as a buy, in combination with strong price targets indicating major upside, all signs are strongly indicative of a positive reaction surrounding the hype around Azure and AI monetization.

  🐻 While bears worry about Microsoft’s ability to turn AI into a profit machine and not a profit sink, AI workloads continue to grow faster than capacity can be delivered. This is a telling sign that Azure’s demand hasn’t weakened, it has simply been constrained. Further, Azure continues to post over 20% YoY growth, with management indicating that about 7-10% can be contributed to AI services alone. With options markets bracing for a sharp move, the biggest risk is underestimating how quickly AI revenue is scaling beneath the surface.

  🇨🇳 From the more macro level view, the U.S. - China trade tensions may indirectly affect Microsoft’s ability to sell tech and expand globally. In conjunction with this, export controls on advanced semiconductor manufacturing equipment continue to bring uncertainty into the global tech supply chain.

  🤖 Adding to the broader environment surrounding the earnings release from Microsoft, ASML who is a key supplier of advanced semiconductor lithography tools, reported great results with elevated sales which beat expectations and raised its outlook. While ASML is not directly tied to Microsoft, its recent performance is a very positive indicator for AI infrastructure investment. With growing demand for the technology that powers Azure’s cloud and AI services, Microsoft’s cloud growth narrative continues to be supported.

  📦 On top of this, Amazon just announced 16,000 job cuts as part of a broader cost-saving measure. This is a trend that becomes increasingly popular across Big Tech, designed to streamline operations and refocus investment towards high-growth areas. For Microsoft, this would mean controlling costs and investing more into areas like AI and Azure, which could actually be a huge positive for the company’s profits.

  📊 Narrowing down the scope, MSFT is currently pricing growth at around 36x earnings today, yet while analysts expect roughly 15% - 17% EPS growth, they are still setting targets 27% - 30% above the current price. Ahead of Microsoft's earnings report, MSFT is likely to rise given the strong AI and Azure momentum, however broader market and geopolitical factors could limit its upside.

🫵 What about you? Will you be joining today's Earnings Call?

💬 Are you bullish or bearish?

Warmly,

MJ

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