Microsoft Q2 earnings – a reason to buy the stock?

on Jan 24, 2023
  • Microsoft reports encouraging cloud revenue for its fiscal Q2.
  • RBC Capital Markets' Rishi Jaluria reacts to the earnings print.
  • Microsoft stock is currently up over 10% versus its YTD low.

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Shares of Microsoft Corp (NASDAQ: MSFT) are up 4.0% in extended hours even though the tech behemoth reported a slightly weaker-than-expected revenue for its second financial quarter.

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Why is Microsoft stock trading up in after-hours?

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Shareholders seem to be cheering strength in the company’s cloud business.

Intelligent Cloud revenue printed at $21.5 billion for the quarter – up 18% year-on-year and slightly ahead of $21.43 billion that analysts had anticipated. Reacting to the earnings print on Yahoo Finance Live, RBC Capital Markets’ analyst Rishi Jaluria said:

This was better than feared. There was a lot of negativity about Azure slowdown and cloud saturation that just hasn’t happened. Office is looking a bit more resilient than expected as well.

Azure grew 31% in the second quarter versus 30.5% expected. Microsoft stock is now up more than 10% versus its year-to-date low.

Jaluria’s take on Microsoft’s investment in OpenAI

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Jaluria recommends buying Microsoft stock and sees upside in it to $285 – about a 13% increase from here.

He’s bullish on the multi-year, multi-billion investment that Microsoft announced just days ago in OpenAI – the company behind ChatGPT.

Microsoft’s investment in OpenAI is a call option on the stock. I see so much room throughout its portfolio to integrate OpenAI. Really, sky is the limit and I think it’ll be a competitive advantage for their portfolio of products.

Jaluria doesn’t expect more layoffs at Microsoft

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Last week, Microsoft said it will take a $1.20 billion charge as it lays off roughly 10,000 of its global employees through March 31st (source). Calling it a one-time event, the RBC analyst said:

This might be a one and done scenario for MSFT unless macro significant gets worse. What’s really important is they’re still hiring in key areas. So, I don’t expect another big round of layoffs.

Jaluria is constructive on the pending acquisition of Activision Blizzard as well and expects it to eventually get a nod from the regulators.

Notable figures in Microsoft’s Q2 earnings report

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  • Earned $16.43 billion versus the year-ago $18.76 billion
  • Per-share earnings slid a little from $2.48 to $2.20
  • Adjusted EPS came in at $2.32 as per the press release
  • Revenue went up 2.0% year-over-year to $52.75 billion
  • Consensus was $2.29 a share on $52.99 billion revenue
  • Share repurchase was worth $4.60 billion this quarter
  • Windows OEM and devices revenues tanked 39% each
  • Xbox content and services lost 12% this quarter

Productivity & Business Processes climbed a better than expected 7.0% but revenue from More Personal Computing slipped a worse than expected 19% on weakness in the PC market.  

Microsoft tends to issue future guidance on the earnings call that you can tune into HERE. Jaluria concluded:

I think it’s signalling that a lot of other enterprise software companies may come up better than feared. It comes down to guidance. If that comes in line with expectations, this bodes well for other enterprise software companies.


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