"The Strong Cloud Guidance Heard Around the World; Cloud Growth Not Slowing!!"
From a note to clients that landed on my desktop early Wednesday:
There are some moments in the financial markets that are pivotal and historical when put in context (e.g. Dimon's JPM conference calls and hand holding in the financial crisis 2008/2009 timeframe). Last night was one of them when in a white knuckle market with the whole Street (regardless of what sector you cover, value/growth, where you live in the world) watching Microsoft's earnings with a close eye, Nadella & Co. gave a robust cloud guidance "for the ages" that will calm Street nerves this morning and was a bullish data point for MSFT and importantly the whole tech sector moving forward. (emphasis his)
Our unwavering view is that despite the fear in the air given the Fed tightening backdrop and valuations falling off a cliff in tech, underlying digital transformation growth is accelerating and not decelerating into 2022 as part of this 4th Industrial Revolution. Microsoft's cloud guidance was stronger than the Street and when factoring in F/X headwinds we would characterize this as a blowout guide in terms of how investors will digest these numbers this morning.
Azure cloud growth came in at 46% which beat the Street at 45% with healthy growth trends looking ahead. Intelligent Cloud revenue of $18.33 billion beat the Street estimate of $18.30 billion. Productivity and Business Processes came in at $15.9 billion vs the Street at $15.8 billion. Personal Computing came in at $17.4 billion vs. the Street at $16.6 billion and was a nice beat for Redmond. On the bottom line, non-GAAP EPS of $2.48 was well above the Street's $2.32 estimate with a robust operating margin of ~43% (vs. Street at 41%).
We note one of the strongest metrics this quarter for MSFT was represented by robust commercial bookings growth driven by long-term Azure commitments, showing accelerating strength and an increase of 32% y/y. (also his) We see this metric as a key headline from the quarter.
Maintains Outperform rating and $375 price target.
My take: Could the chart above be a preview of Apple after-hours trading Thursday?