Microsoft has a long path of earnings growth ahead, says Morgan Stanley

Microsoft Corp. has been a bit of an artificial-intelligence story lately, thanks to the company’s investment in and partnership with OpenAI, the creator of the hot ChatGPT chatbot.

But Microsoft

can also be an earnings-growth story, according to Morgan Stanley’s Keith Weiss. He wrote Monday that he models five straight quarters of accelerating growth in earnings per share coming off the December quarter, “a setup supportive of shares moving higher.”

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Microsoft’s business has fallen under pressure recently amid slowing growth for its Azure cloud-computing business that’s reflective of a shakier economic climate. Weiss sees other conditions improving, however.

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“Near-term cyclical impacts create an attractive entry point into one of the best secular-growth stories in tech,” Weiss wrote. The company is set to benefit from a number of trends including easier comparisons, price hikes, weakening foreign-exchange pressures, and decelerating operating expenses, factors that could help get Microsoft’s EPS growth up to a double-digit rate in the fiscal fourth quarter.

In his view, earnings acceleration “should bring investors back to Microsoft, given strong stock performance historically aligned to EPS growth and a broader market backdrop where earnings outside of software look to be coming under increasing pressure.”

Weiss looked at Microsoft’s stock performance in recent years, noting that shares “traded sideways” from 2010 to 2015 before the company sports a reacceleration in earnings growth that “catalyzed” outperformance through 2021.

He rates the stock at overweight with a $307 target price.

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Shares of Microsoft are up 3.9% in midday trading Monday. They’ve gained 14% to start 2023, though they’re off about 7% over the past 12 months as the Dow Jones Industrial Average

has fallen about 2%.