Microsoft (MSFT) stock is the worst Dow Jones stock Thursday, down nearly 6% at last check, after the tech giant beat top- and bottom-line expectations for its fiscal 2025 second quarter but issued a soft outlook for its third quarter.
In the three months ending December 31, Microsoft's revenue increased 12.3% year over year to $69.6 billion, led by 21% growth in Microsoft Cloud revenue to $40.9 billion. Its earnings per share (EPS) rose 10.2% from the year-ago period to $3.23.
"We delivered another quarter of double-digit top and bottom-line growth," said Microsoft Chief Financial Officer Amy Hood in a statement. "Results were driven by strong demand for our cloud and AI [artificial intelligence] offerings while we also improved our operating leverage with higher-than-expected operating income growth."
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The results topped analysts' expectations. Wall Street was anticipating revenue of $68.8 billion and earnings of $3.11 per share, according to CNBC.
However, sentiment turned negative toward Microsoft when it provided an outlook for its fiscal third quarter on its conference call. The company expects revenue in the range of $67.7 billion to $68.7 billion, which came in well below analysts' expectations for revenue of $69.8 billion.
Brian Mulberry, client portfolio Manager at Zacks Investment Management, says Wall Street could also be disappointed in the company's 31% year-over-year revenue growth in Azure, its cloud computing platform, which slightly missed analysts' estimates for 32% growth.
"This has been a key component of both revenue growth and profitability that will be critical in funding the capex projects announced around AI infrastructure," Mulberry notes. " Long term, the balance sheet looks healthy and the revenue growth is still a net positive."
Is Microsoft stock a buy, sell or hold?
Microsoft has been choppy on the price charts over the past 12 months, up roughly 9% vs the S&P 500's 23% gain. But Wall Street is keeping the faith on the blue chip stock.
According to S&P Global Market Intelligence, the average analyst target price for MSFT stock is $507.47, representing implied upside of about 20% to current levels. Additionally, the consensus recommendation is Strong Buy.
Financial services firm Wedbush maintained its Outperform rating (equivalent to a Buy) and $550 price target following the earnings release.
"Overall, there was some weak spots along with a 2% currency headwind next quarter that could put some pressure on shares this morning," says Wedbush analyst Dan Ives. "That said, we are laser-focused on the AI piece of this MSFT story and all metrics were ahead of expectations which give us added confidence in the AI Revolution bull thesis for Redmond into the rest of fiscal year 2025."
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