Microsoft (MSFT.US) was upgraded to "Overweight" by Wells Fargo ahead of its Q2 earnings, and it is anticipated that Azure will contribute to a faster revenue growth in the second half of the year.

Wells Fargo reiterated its "Overweight" rating on Microsoft (MSFT.US) ahead of the company's Q2 FY2025 earnings release, and maintained a price target of $515. Wells Fargo's analyst team, led by Michael Turrin, provided a preview of Microsoft's upcoming Q2 earnings, expecting a balanced performance from the company in the quarter.

The analysts noted that Microsoft's cloud revenue and order volumes are expected to continue to benefit from ongoing consolidation in the software sector. Meanwhile, the company's leadership in artificial intelligence, particularly Azure AI, is also expected to provide a strong tailwind for its growth. In addition, the company's healthy end-of-year budget also provides a cushion for its business development.

Despite this, the analysts expect Q2 to be a low point for Microsoft's business growth. However, they remain optimistic about Azure's future, believing that improvements in Azure will drive the company's revenue growth to accelerate again in the second half of the year, with a potential increase of more than a dozen percentage points.

In conversations with partners, Turrin and his team noted that Microsoft is shifting its focus to Copilot Studio, which enables the development of Copilot Agents.

The analysts added that partners have observed a significant pickup in agent adoption, which is outpacing Microsoft 365 Copilot, which had a slow start but is now improving.

Moreover, the analysts mentioned that they have heard discussions about Microsoft's increased focus on Microsoft 365 adoption, particularly in enterprise plans for E3 and E5 bundles, security, and Teams Phone, where the company is actively promoting the adoption and application of its products.