Microsoft’s Cloud Services Fuel 2Q Sales Beat; Shares Rise

Microsoft Corp. reported stronger-than-expected 2Q results (ending Dec. 31, 2020), driven by demand for its cloud computing services during the coronavirus pandemic. Shares of the software company increased 3.7% in Tuesday’s extended trading session.

Microsoft’s (MSFT) 2Q earnings of $2.03 per share increased 34.4% year-over-year and crushed the analysts’ expectations of $1.64 per share. The tech giant’s 2Q revenue grew 16.8% to $43.1 billion year-over-year and topped the consensus estimates of $40.2 billion.

Microsoft’s CFO Amy Hood said, “Accelerating demand for our differentiated offerings drove commercial cloud revenue to $16.7 billion, up 34% year over year.”

The tech giant’s cloud platform Azure saw 50% growth during the quarter, as more enterprises shift to cloud computing. Meanwhile, Xbox revenue was up 40% from the year-ago period.

Revenues generated from the company’s productivity and business processes segment increased 13% year-over-year. Furthermore, intelligent cloud and personal computing segments’ sales grew 23% and 14%, respectively, on a year-over-year basis. (See MSFT stock analysis on TipRanks)

Following the results, Wedbush analyst Daniel Ives maintained a Buy rating and a price target of $270 (16.2% upside potential) on the stock. Ives said, “With a vaccine being deployed globally, the WFH [work from home] shift will clearly moderate as many return to the office during the course of 2021.”

“However, from an IT [information technology] architecture perspective, the cloud shift will continue to gain speed as many CIOs [chief information officers] aggressively go down the digital transformation path with MSFT’s Azure/Office 365 footprint as the main enterprise cloud artery,” the analyst added.

Overall, the rest of the Street has a firmly bullish outlook with the analyst consensus of a Strong Buy based on 23 unanimous Buys. The average analyst price target of $253.30 implies upside potential of about 9% to current levels. Shares have gained by about 42.3% in one year.

What’s more, MSFT scores a perfect 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

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