Microsoft Crushes; Get Excited

Key Points

• Analysts' expectations were easily beaten. 
• Shares popped in the after-hours session.
• If the rally continues, then all stocks will benefit. 

A 7% jump in last night's after-hours session should tell you everything you need to know about Microsoft NASDAQ: MSFT Q2 earnings. We'll have to wait and see how shares trade in Wednesday's session before it's definitive, but for now, at least, it looks like the numbers could well be fueling a new rally. 

Having been taking a hiatus over the past fortnight, it's just what their shares need. True, they were still up 30% from November's low coming into last night's release, but some fresh reasons were required to get them back on the road to $300. Straight off the bat, investors got two of them. 

Digging Into The Numbers

The company's non-GAAP EPS was well ahead of the consensus, as was their topline revenue. The latter figure was able to boast year-on-year growth of 7%, which will do the bulls no harm at all. Looking at the individual business units, revenue from Productivity and Business Processes was $17.5 billion and up 11%, while revenue from Intelligent Cloud came in at $22.1 billion and showed growth of 16%. In line with the recent and widespread trend of slowing PC sales, Microsoft's More Personal Computing revenue decreased by 9% though this was largely expected. 

On the whole, the numbers showed that Microsoft has continued to deliver impressive financial performance, driven by the growth of its cloud and AI business. The results were primarily driven by strong demand for its cloud services, which include its Azure cloud platform and Office 365 productivity suite. 

In addition to solid cloud revenue growth, Microsoft's AI business is also playing a prominent role in the company's success. In last night's earnings call, Microsoft CEO Satya Nadella stated that the company is well-positioned to take advantage of the opportunity presented by AI and that Microsoft is investing heavily in AI research and development. Our readers will already be familiar with the rapid growth of ChatGPT, whose developer OpenAI has had both investment and help from Microsoft. 

On the back of the company's strong earnings results, Microsoft's shares jumped nearly 8% in the after-hours session. A move like this is indicative of investors expressing confidence in the company's ability to continue delivering strong financial performance in the future, and it bodes well for their share price in the near to medium term. 

30% Upside Still To Be Had

The team over at Jefferies is eyeing a price target of $350, which points to an upside of about 30% from Tuesday's closing price. This came as part of their Buy reiteration on Wednesday morning, which echoed the Moderate Buy rating already in place from MarketBeat's MarketRank Forecast. Were shares to open at the level where they closed out last night's after-hours session, that is $299, they'd already be well above April's eight-month high. In fact, they'd be on track to hit $300 for the first time since April of last year, a return to form that will benefit a lot of the broader tech market. 

As one of the industry giants, Microsoft is viewed as a bit of a bellwether for the industry as a whole, and its results would have been closely watched for signs of slowing growth. However, the resounding beat and strong performance across the most critical business units could well justify a fresh move north in the tech-heavy NASDAQ index. 

Let's see if shares can break above $300 this week, if not today because once they do, there's a little in their way between there and $350. It would be a stunning recovery after a long winter for tech and one that would benefit almost all investors.