Microsoft the ‘outright leader in cloud/IaaS’

Wells Fargo analysts told investors in a note Wednesday that Microsoft (NASDAQ:) partners believe the tech giant is “the outright leader in cloud/IaaS.”

“Partners remain upbeat,” said analysts. “Partners indicated that we’re now through the bulk of the major cost-saving optimizations and expect moderating model impact from here—though acknowledging optimizations will likely be more common practice from now on. Despite the ongoing cost control focus, partners believe MSFT has more than enough favorable offsets to continue driving growth and winning share (inc. areas like security and AI) and are now beginning to view MSFT as the outright leader in cloud/IaaS.”

Looking ahead to the company’s FQ4 results, analysts, who have an Overweight rating and a $38 price target on the stock, said they expect the earnings release will help extend the narrative around Azure stabilization, share gains, and an expected uptick in FY24 growth as headwinds ease and AI-related tailwinds more tangibly surface.

“We see a growing likelihood of Azure results stabilizing in late 2023 as Microsoft sees diminishing impact from optimizations, comps ease, and the co gets an AI-led boost,” the analysts added.

“We’re expecting a mostly in-line print, but see potential for upside in: 1) Windows OEM, given prelim Gartner/IDC reports of global PC shipments -17%/-13% y/y vs. guide of low-to-mid 20s declines, 2) Azure, given potential for AI contrib to surface quicker than expected, and 3) Office 365 Comm’l growth, as E5 suite momentum continues to pick up.”