Azure Drives Microsoft (MSFT) Growth, Raising PT - Piper Jaffray

Piper Jaffray analyst, Katherine Egbert, thinks that Microsoft (NASDAQ: MSFT) is a safe stock to own in a down market as Azure shows strong growth and Windows outperforms the PC market. Price target increases to $66.

Windows outperforms PC growth. Windows OEM revenue declined by 5% in the quarter, below the 8-10% level of PC shrinkage forecast by Gartner and IDC. Upsell of premium Windows10 SKUs on newer devices led to the upside.

Enterprise sales hold steady. The fear going into the earnings report that enterprise weakness would follow what Intel and IBM reported earlier this month did not materialize, as core enterprise sales held steady, up 6% y/y on upsells of SQL and other premium products attached to annuities, plus strength in Azure. In consumer, Office365, Windows, Bing and Xbox/Halo all showed strength during the quarter.

The highlight of the quarter, and the main reason for owning MSFT stock, is Azure, Microsoft's public cloud offering. Azure revenue accelerated again this quarter, up 127% as reported. The growth was helped by premium services, such as advanced analytics and machine learning. Microsoft's overall commercial cloud business (Azure, Dynamics, Office 365 Commercial) is now on a $9.4B annual run rate.

No change to Overweight rating but the $66 PT is upped from $64.

For an analyst ratings summary and ratings history on Microsoft click here. For more ratings news on Microsoft click here.

Shares of Microsoft closed at $52.06 yesterday.

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