Azure and Office business outlook positive, BofA lifts MSFT (US) pre-earnings

Microsoft (MSFT.US) will report its second-quarter earnings after the market closes on January 29, and Bank of America sees an improvement in investor sentiment as the tech giant's Azure and Office businesses show positive signs. Bank of America rates Microsoft "Buy" with a target price of $510. Analyst Brad Sills, after surveying major partners, said: "We expect healthy growth in Azure and Office revenue." However, comments from Microsoft partners suggest that the quarter's performance will be more likely "in line with expectations" than above expectations. Sills added: "We expect 0%-1% upside to our $68.6bn (up 10.1% YoY on a constant currency basis) revenue estimate for the quarter, driven by stable project migration to Azure and continued momentum in the E3/E5 upgrade cycle." Sills expects Azure revenue to grow 32.5% YoY on a constant currency basis, with AI contributing 13 percentage points. Sills added that the company's productivity and business processes segment, including Office365, is expected to grow 11% YoY on a constant currency basis, driven by a "stable" upgrade cycle and the development momentum of Copilot. Sills also said that Microsoft may raise its margin expectations for fiscal 2025, driven by AI. Sills said: "As AI drives accelerated growth in core businesses (covering applications and infrastructure) and margin outlook improves, Azure's capital expenditure return is steadily rising." Sills said: "As AI drives accelerated growth in core businesses (covering applications and infrastructure) and margin outlook improves, Azure's capital expenditure return is steadily rising."