-- Microsoft's (MSFT) fiscal Q3 results were solid, but bearish investors are focused on the company's capital expenditure guidance exceeding net income, which implies poor returns on capital spending, Oppenheimer said in a Thursday note.
The downside case against the company highlights declining margins across Intelligent Cloud, the note said. The bears will highlight that overall gross margin is also under pressure due to Microsoft embedding lower-margin artificial intelligence features across its products, according to the note.
The upside case for Microsoft focuses on Azure revenue growth accelerating in fiscal Q3 and Q4, even with harder year-ago comparisons, Oppenheimer noted. The bulls will highlight that the Microsoft 365 segment is also continuing growth amid AI disruption, while AI-related business is increasing in the triple-digits, according to the note.
Oppenheimer maintained the company's stock rating at outperform with a price target of $515.
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