KeyBanc analyst Michael Turits reiterated an Overweight rating on Microsoft Corp
The analyst re-rated Microsoft ahead of its Q1 earnings following stable Microsoft results in his Q3 VAR Survey and in-line or better feedback on Azure from a few large channels, including positive commentary on genAI contribution to Azure growth.
On this basis, Turits expects an overall in-line Q1. However, he retained some caution given the ongoing high-rate environment, macro concerns expressed in his HubSpot checks, and one large channel he spoke to light on O365 due to macro.
VAR survey meets and beats with MSFT up slightly Q/Q to 91%. Large channels he spoke to said they were in line or better relative to their expectations with Azure.
The C4Q Azure expectations were for similar growth next quarter, with commentary suggesting a shallowing deceleration and stabilization in cloud growth over the next few quarters.
IDC and Gartner 3Q23 PC shipment Y/Y% decline estimates of -7.6% and -9.0% y/y were in line with his assumptions, suggesting Q1 Windows OEM in line with guidance.
Turits remains positive on MSFT's leadership from infrastructure to applications. As a beneficiary of generative AI with M365 Copilot GA for enterprise and Azure, he expects to be boosted by demand for OpenAI and broader AI and genAI model training, deployment, and application development.
He expects the Q2 guide to include the Activision Blizzard acquisition. Based on consensus, he estimates $0.06 and $0.13 accretion to Q2 and FY24 EPS on a non-GAAP basis.
Turits projects Q1 revenue and EPS of $54.38 billion (prior $54.5 billion) vs. consensus $51.72 billion and $2.65 vs. consensus $2.52.
He sees Microsoft's increasingly strategic positioning, early AI leadership, and strong public cloud position warranting a premium.
Price Action: MSFT shares traded lower by 1.49% at $326.48 on the last check Friday.
