What Wall Street wants from Microsoft earnings – CNBC

“It all boils down to is the Azure business growing and growing profitably,” said Stifel analyst Brad Reback. “If Azure is the growth engine we think it is and can pick up market share from AWS, then the company is well positioned for the next couple of decades.” (Reback has a Buy rating on the stock and a $66 price target.)

Microsoft began reporting commercial cloud gross margins for the first time last quarter — to add more transparency to its business — and this metric will continue to be important to investors, he said. Last quarter, Microsoft reported a commercial cloud gross margin 49 percent, up from 42 percent in the prior quarter.

Though Amazon‘s AWS is clearly in the lead today, Microsoft’s Azure is quickly closing the gap, said PiperJaffray analyst Alex Zukin. Azure’s core functions are finally comparable to AWS’s and Microsoft’s customer support, existing relationships and contract flexibility make Azure particularly appealing to many businesses, he said. Azure is doing well in the retail sector as retailers are wary of sharing their data with Amazon or funding a competitor, he said.

“This is an extremely large market and its turning into a duopoly where the majority of vendors are going to pick AWS or Azure,” he said. Zurkin rates the stock a “Buy” with an $80 price target.

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