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Microsoft (MSFT) shares jumped Wednesday after the software leader beat Wall Street’s targets for its fiscal third quarter thanks to a strong showing by its cloud computing businesses. The company also guided higher for the current period. MSFT stock rose over 7% on the news.
The Redmond, Wash.-based company late Tuesday said it earned $2.45 a share on sales of $52.9 billion for the quarter ended March 31. Analysts polled by FactSet had expected earnings of $2.24 a share on sales of $51 billion. On a year-over-year basis, Microsoft earnings rose 10% while sales advanced 7%.
Microsoft Cloud sales surged 22% to $28.5 billion in the March quarter.
“Across the Microsoft Cloud, we are the platform of choice to help customers get the most value out of their digital spend and innovate for this next generation of AI,” Chief Executive Satya Nadella said in a news release.
For the current quarter, Microsoft forecast revenue of $54.85 billion to $55.85 billion. The midpoint of $55.35 billion was above Wall Street’s consensus target of $54.7 billion for the June quarter.
Microsoft expects “another quarter of healthy revenue growth,” Chief Financial Officer Amy Hood said on a conference call with analysts.
On the stock market today, MSFT stock advanced 7.2% to close at 295.37. During the regular session Tuesday, MSFT stock slid 2.3% to 275.42, during a rough day overall for stocks.
Of Microsoft’s three business segments, Intelligent Cloud was the top performer in the March quarter. Revenue in the segment increased 16% year over year to $22.1 billion. The unit includes server products and cloud services such as Azure.
Microsoft’s Productivity and Business Processes unit saw sales rise 11% to $17.5 billion. The division includes Office productivity software as well as the Dynamics and LinkedIn businesses.
And finally, Microsoft’s More Personal Computing unit saw sales decline 9% to $13.3 billion. The unit includes Windows PC software, Xbox video games, Surface computers, internet search and advertising.
More than two dozen Wall Street analysts raised their price targets on MSFT stock after the upbeat earnings report.
“Cloud growth and the overall outlook for the June quarter was solid and much better than feared given recent noise in the market,” Wedbush Securities analyst Dan Ives said in a note to clients. He reiterated his outperform rating on MSFT stock and raised his price target to 325 from 315.
In other news, the U.K.’s Competition and Markets Authority on Wednesday blocked Microsoft’s $69 billion acquisition of video game publisher Activision Blizzard (ATVI). Microsoft said it plans to appeal the ruling.
The antitrust body said it believes “the deal would alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for U.K. gamers over the years to come.”
The U.K.’s action lowers the chances of Microsoft being able to consummate the deal.
“While Microsoft and Activision indicated they would appeal, we think the chances of success are no more than 10%,” TD Cowen analyst Doug Creutz said in a note to clients.
On Tuesday, the New York Post reported that Microsoft is preparing to complete the Activision purchase, despite the Federal Trade Commission’s December move to stop the deal over antitrust concerns. Microsoft announced its intent to buy the video game publisher in January 2022.
MSFT stock has an IBD Composite Rating of 94 out of 99, according to IBD Stock Checkup. That puts Microsoft in the top 6% of stocks for performance in the past 12 months.
IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Further, MSFT stock is on the IBD Tech Leaders list and in the IBD Long-Term Leaders Portfolio.
Microsoft stock has gotten a boost this year from the company’s efforts to infuse artificial intelligence into its software and services.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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