Microsoft (MSFT, Financial) is set to release its second-quarter results. Analysts at Bank of America have observed improved investor sentiment due to positive trends in Microsoft's Azure and Office businesses. The bank has given Microsoft a "Buy" rating with a target price of $510.
According to Bank of America analyst Brad Sills, a survey of key partners indicates expected healthy revenue growth for Azure and Office. However, feedback from Microsoft's partners suggests that the quarterly performance is likely to meet expectations rather than exceed them. Sills estimates that second-quarter revenue might surpass their projected $68.6 billion revenue by 0% to 1%, thanks to stable migration to Azure and the continued momentum in the E3/E5 upgrade cycle.
Azure revenue is anticipated to grow by 32.5% year-on-year on a constant currency basis, with artificial intelligence contributing 13 percentage points to this growth. Furthermore, driven by a steady upgrade cycle and the momentum of Copilot, the company's Productivity and Business Processes segment, which includes Office365, is expected to see an 11% year-on-year increase in sales.
Sills also highlights that under the influence of artificial intelligence, Microsoft might revise its profit margin expectations for the 2025 fiscal year. He notes that as AI accelerates growth in core business areas like applications and infrastructure, there is a steady increase in Azure's capital expenditure returns.
