A top Wall Street tech analyst says investor frustration around one Mag 7 name is masking what he sees as one of the strongest growth setups among the mega-cap tech names this year.
Speaking in a new CNBC interview, Gil Luria, head of technology research at D.A. Davidson, says the firm is bullish on Microsoft (MSFT) after seeing its cloud growth numbers.
“Yeah, it’s still our top pick. Investors may have expected 39 to 40% growth in Azure. They got 38%. That’s probably the only place where I see people picking on it… Most importantly, let’s not forget, Google Cloud, which reports next week, is not going to grow 38%. It’s more likely to grow in the low 30s. Amazon Web Services, which reports next week, they’re more likely to grow in the low 20s. Azure is still winning. It just didn’t quite meet those very, very high expectations.”
While Google (GOOGL) has strong momentum in the AI race, Luria says the market has already priced that shift aggressively.
“Google is now not just considered a winner in AI, it’s considered the winner in AI. We’ll see what they say next week. But again, realistically speaking, Google Cloud is growing slower than Azure, Google Ads is growing slower than Meta. So the fact that Google is trading at a premium to Microsoft and Meta really is a matter of momentum from last year, from Google coming from being considered a loser just a few months ago, was trading at 18 times earnings, to being considered the winner, trading at closer to 30 times earnings on next year. So it’s swung pretty widely.”
Luria says Microsoft is positioned to regain investor confidence as Azure growth continues to compound, while also pushing back on what he called a flawed narrative weighing on Microsoft shares.
“We expect Microsoft to outperform significantly this year as it gets credit for this Azure growth. Parts of what’s plagued Microsoft are a couple of things. One is this anti-software narrative, this narrative that AI will replace all of the software at Microsoft. Having such a big software business would be part of that. We don’t agree with that, obviously. We think AI will get integrated into all of Microsoft’s products and make them better.”
Finally, he addresses investor concerns around OpenAI and capital availability.
“And the second one is the OpenAI concern. Is OpenAI going to be able to raise capital? If it isn’t able to raise capital, can it continue to grow as a big engine for Microsoft. So as we look at OpenAI’s fundraising, if they could raise $50 billion or more, which is being reported, Microsoft will be fine because ChatGPT will continue to drive growth and again, they’re growing faster than Google and Amazon.”
At time of publishing, MSFT is trading at $433, down over 20% from its all-time high of $555.
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