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Microsoft shares rise as Wall Street heralds ‘strong execution,’ wider AI rollout

Microsoft CEO Satya Nadella speaks at the company’s annual shareholder meeting in Bellevue, Washington, on Nov. 30, 2016.

Jason Redmond | AFP | Getty Images

Wall Street analysts had high praise for Microsoft’s fiscal first-quarter earnings report, both from an earnings perspective and the performance of some segments, including the company’s Azure cloud unit and the anticipated rollout of Microsoft’s artificial intelligence product Copilot.

Microsoft shares rose around 3% during Wednesday trading.

The company reported on Tuesday earnings per share of $2.99, beating an LSEG consensus estimate of $2.65. The company also beat revenue consensus among analysts surveyed by LSEG, formerly known as Refinitiv. Microsoft reported revenue of $56.52 billion for the quarter, compared to a consensus estimate of $54.50 billion.

Analysts heralded strong revenue growth and “consistent” execution. “We reiterate our Buy rating,” Deutsche Bank analyst Brad Zelnick said in a report to clients Wednesday morning, citing “results that overachieved on just about every possible measure.” Zelnick raised his price target from $380 to $395, adding that “operating discipline” and “a full-stack approach to delivering AI solutions” was just as, if not more impressive, than Microsoft’s revenue beat.

Zelnick also noted that “all eyes” would be on the full launch of Microsoft’s 365 Copilot AI service in November, with Zelnick calling it “the most anticipated new product we have ever seen released in our long time covering the Software industry.”

Barclays analyst Raimo Lenschow wrote that Microsoft’s first-quarter results were “as good as it can get,” but trimmed his price target slightly from $425 to $421, citing the effect that higher capital expenditures would have on Microsoft’s estimated free cash flow.

Second-half growth in Azure “will likely serve as the main discussion point given the growing AI contribution” to that unit, Lenschow wrote. Azure is part of Microsoft’s Intelligent Cloud segment and reported revenue of $24.26 billion, up 19% year over year, and stronger than the StreetAccount analyst consensus of $23.49 billion. Azure revenue alone, which Microsoft doesn’t disclose in dollars, grew 29% during the quarter.

Comments from Microsoft executives helped boost analyst sentiment as well, with Chief Financial Officer Amy Hood saying on a Tuesday call with analysts, “We feel good about our execution, we feel good about taking share and we feel good about consistent trends.”

— CNBC’s Jordan Novet and Michael Bloom contributed to this report.

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