Microsoft to Outperform This Year, D.A. Davidson's Luria Says

Summary

Gil Luria of D.A. Davidson reacts to Microsoft's Q2 earnings, saying Azure grew 38%, slightly below the highest investor expectations but still faster than likely growth at Google Cloud and AWS. He says Microsoft should significantly outperform this year as it gets credit for Azure growth, while Alphabet's premium valuation is more narrative and momentum than fundamentals. He also pushes back on fears that AI will replace Microsoft's software and says OpenAI's ability to raise at least $50 billion is important for Microsoft's growth outlook.

• Microsoft reported Azure growth of 38%, slightly below some investor expectations of 39-40%.
• Luria says Azure remains the fastest-growing major cloud versus expected Google Cloud low-30s and AWS low-20s growth.
• He expects Microsoft to significantly outperform this year as investors credit its Azure growth.
• He views Alphabet's premium valuation as momentum-driven, with Google Cloud and ads growing slower than peers.
• He rejects the narrative that AI will replace Microsoft's software, arguing AI should enhance Microsoft products.
• OpenAI's ability to raise $50 billion or more is a key factor for Microsoft's growth engine.
• Microsoft has been one of the weaker Magnificent Seven performers over the past three months.
• He remains positive on Microsoft's AI integration and cloud momentum.