Microsoft beat earnings estimates for the September quarter last night, triggering multiple upgrades and price target increases. It seems CEO Satya Nadella is hitting his stride as the company makes progress in his area of specialty, the cloud. However, not all analysts are thrilled with the results as some are questioning what the big deal is, even while raising their price target.

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Microsoft beats estimates for second consecutive quarter

Most analysts are thrilled that the company beat estimates for both non-GAAP earnings and revenue for the second quarter in a row, with many starting to see the light in what has been a more than two-year turnaround process. Microsoft posted earnings of 76 cents per share on $22.33 billion in sales, beating the Street at 68 cents per share and $21.7 billion. The company’s gross margin was about in line with estimates at 64.9%, versus 65% estimated by the Street.

The commercial cloud segment is heading for a more than $13 billion run rate versus more than $12.1 billion quarter over quarter. The segment’s revenue grew 59% compared to last year and heading toward $20 billion in fiscal 2018. Stifel analysts called the commercial cloud results “nice” and raised their price target from $60 to $66 per share. They also maintained their Buy rating on the stock.

Gushing over Microsoft’s cloud results

Most analysts agree with Stifel that the cloud results were the big story in last night’s earnings report. Deutsche Bank analyst Karl Keirstead called the cloud story “the star,” as Azure c/c growth reached 121% after accelerating from the previous quarter. Cloud gross margins expanded 700 basis points quarter over quarter, although the Windows/ PC business still led in terms of total revenue upside as the PC market improved during the quarter.

Keirstead said although his earnings estimates have been flat or down following each of the last three quarters, they’re finally increasing their fiscal 2017 estimate from $2.82 to $2.90 per share. They add that c/c adjusted earnings per share growth has been more than 10% for the last six consecutive quarters as well. Further, they called the Azure ramp “extraordinary,” although even Microsoft’s Server Product business accelerated to 4% growth.

One thing the analyst didn’t like was the second fiscal quarter revenue guide of $25.1 billion, which implies a 1% to 2% decline. While it’s roughly in line with his $25.2 billion estimate, it missed the consensus of $25.8 billion. He noted that half the gap is because of Microsoft lapping two “unusual boosts”: recognition of Bing search gross revenues and custom support Enterprise Services revenues. The rest of the gap comes from Surface and other hardware, but none of these segments contributed to the guidance miss.

Overall, Keirstead likes Microsoft’s trajectory, noting that many tech vendors are being stressed by the transition to a business model based on cloud computing on subscriptions. The September quarter could be the first indication that the company is putting these difficulties behind it. As a result, he reiterated his Buy rating and raised his price target from $65 to $70.

Not all are thrilled with Microsoft

One notable exception to the “hurray Microsoft” train is MKM Partners analyst Kevin Buttigieg. He maintained his Neutral rating while raising his price target from $52 to $60 per share but queried, “What’s the difference?” in his research note this morning.

He termed the Azure acceleration “surprising” and said Microsoft is making progress in its other cloud initiatives but added that the biggest upside was in PCs and Surface. Neither of these two areas are expected to keep showing upside, and the company cut its guidance for the current quarter. However, investors rewarded it for the earnings and sales beat.

Other price target increases for Microsoft stock

The company received a number of other upgrades and price target increases following last night’s earnings report. William Blair analysts upgraded Microsoft stock from Market Perform to Outperform, and Wunderlich upgraded it to Buy. JPMorgan raised its target from $55 to $57, while CLSA analysts moved their target from $60 to $65. RBC Capital Markets raised its target from $61 to $65 per share.

Microsoft shares rose by as much as 4.15% to $59.62 during regular trading hours on Friday after touching a new all-time high of $60.45 in the premarket hours and opening the regular trading day at $60.28.

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