Microsoft Shares Hit Fresh Record High as Azure Drives Q2 Earnings Beat

Microsoft smashed second quarter earnings forecasts as revenues from its Azure cloud business improved, helping the world's biggest software company close the gap on market leader Amazon.
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Microsoft Inc.  (MSFT) - Get Report shares were indicated firmly higher in pre-market trading Thursday after a stronger-than-expected second quarter earnings report highlighted by the first acceleration in revenues from its Azure cloud unit in at least two years. 

Microsoft said diluted earnings for the three months ending in December, the company's fiscal second quarter, surged to $1.51 per share, a 37.2% improvement from the same period last year that smashed the Street consensus forecast of $1.32. Group revenues also topped analysts' estimates, rising 14% to $36.9 billion as sales from its intelligent cloud division jumped 27% to $11.9 billion.

Looking into the group's third quarter, Microsoft said it sees intelligent cloud revenues -- where it remains locked in a battle with market leader Amazon Inc.  (AMZN) - Get Report -- in the region of $11.85 to $12.05 billion and sales from personal computing of between $10.75 billion and $11.15 billion.

"Overall, in terms of the Azure momentum, it's sort of the thing that we have seen even in the previous quarters so, which is, we have a stack that is from infrastructure to the (platform as a service) that's fairly differentiated," Microsoft CEO Satya Nadella told investors on a conference call late Wednesday. 

"Azure is the only cloud that offers consistency across operating models, development environments, and infrastructure stack, enabling customers to bring cloud compute and intelligence to any connected or disconnected environment," he added.

Microsoft shares were marked 3.25% higher in early trading to change hands at $173.40 each, an all-time high and a move that would extend the stock's six-month gain to around 24.1% and value the Redmond, Washington tech giant at just over $1.3 trillion.

Azure revenues grew 62%, Microsoft said, just ahead of the 59% pace recorded over the three months ending in December for the first quarter-on-quarter acceleration in two years. 

Microsoft also got a boost from winning the 10-year $10 billion Joint Enterprise Defense Infrastructure (JEDI) contract from the Pentagon in late October, beating rival Amazon and its market-leading Amazon Web Services cloud platform. 

Amazon's cloud market share was about 33% as of the end of the second quarter, while Microsoft's Azure held 16%.

"Strong F2Q results reaffirm our thesis that Microsoft is capturing a generational opportunity in enterprise tech given its rapidly growing cloud business, healthy on-prem, and strong cash generation," said Credit Suisse analyst Brad Zelnick, lifted his price target on the stock by 5.5% to $190 per share with an outperform rating. 

"While skeptics may question the margin impact of cloud mix shift ... Azure re-acceleration validates Microsoft’s hybrid and enterprise advantages, despite increasing investments by public cloud rivals," he added. "Microsoft 365 strength should continue to drive Office 365 (average revenue per user) uplift, and help sustain the Windows business post refresh cycle."