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Microsoft’s performance in all three of its business categories was better than expected.

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At least on the surface, the stock market’s lukewarm response to

Microsoft’s

March quarter results seems surprising. Probe deeper, and you can find a few nits to pick. But Wall Street analysts nonetheless remain overwhelmingly bullish, with about a dozen firms raising price targets for the software giant after the report.

The core numbers were impressive. Microsoft (ticker: MSFT) posted revenue of $41.7 billion, up 19% from a year earlier, and ahead of the Wall Street consensus of $41 billion. As several analysts pointed out, Microsoft is showing remarkable growth for a company this size, adding about $20 billion a year in revenue.

Non-GAAP profits were $1.95 a share, topping Wall Street’s estimate of $1.78. The company had strong performance across the board, beating expectations in all three of its primary business segments. Aggregating the outlooks the company provided for each segment—Microsoft doesn’t issue financial forecasts for the overall business—indicates that June quarter revenues should be about $44.5 billion, well ahead of the former Street consensus of $43 billion.

Gaming revenue was up 50% in the quarter, driven by 232% growth in sales of Xbox hardware, LinkedIn revenue was up 25%; search advertising revenue, excluding traffic acquisition costs, increased 17%; and hardware revenue from Microsoft’s Surface laptops and whiteboards was up 12%. Commercial cloud revenue, a category that includes Azure and Office 365, among other elements, was $17.7 billion, up 33%.

Yet in late morning, Microsoft shares were down 3.1%, to $253.90. Why is the stock selling off?

One factor is that on a currency adjusted basis, revenues at Azure, Microsoft’s public cloud business, were up 46%, a slight deceleration from 48% growth in the December quarter. Some investors found that result disappointing. There were also whispers on Wall Street that revenues would beat estimates by an even wider margin than they did. And the stock had rallied about18% for the year through Tuesday’s close.

But those are largely quibbles, and the analyst community is as bullish as ever.

Morgan Stanley analyst
Keith Weiss
headlined his report on the quarter “The Case for Buying More Microsoft.” He noted that commercial bookings were up 39% year over year, highlighting both an expanding market to serve and Microsoft’s growing share of IT spending.

“Increased confidence in the durability of growth has our EPS forecasts moving higher, despite ramping investment behind that growth,” he wrote. Weiss kept an Overweight rating on the stock, lifted his target for the price to $300 from $290, and said the shares remain a “top pick.”

BofA Global Research analyst Brad Sills also repeated a Buy rating, while increasing his target to $305, from $300. “Another solid quarter across Microsoft’s major lines of business underscores powerful digital transformation tailwinds and solid execution in place across key components of the Microsoft cloud,” he wrote. “Microsoft reported solid Q3 results, largely driven by Azure momentum and Windows upside on better PC shipments.”

J.P. Morgan analyst Mark Murphy marveled in a research note about the ability of the world’s largest software company to post growth in bookings like what might seen at a start-up. Microsoft is seeing improving trends “across industries, customer segments, and geographical markets, supported by strong execution.”

Murphy said metrics for bookings and order backlogs, which will bring recurring revenue, appear strong. He repeated an Overweight rating, and raised his target for the stock price to $270, from $245.

Piper Sandler’s
Brent Bracelin
advised buying the stock on the dip. “Not only does Microsoft operate the world’s largest cloud business at a $70 billion-plus scale, it is gaining share, growing faster than the cloud industry and boasts a 40%-plus operating margin,” he wrote. Bracelin kept an Overweight rating on the stock and raised his target for the price to $305, from $300.

Write to Eric J. Savitz at eric.savitz@barrons.com

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