On Thursday, UBS shared insights into the cloud segments of major tech companies ahead of their fourth-quarter earnings calls. The firm's analysis, based on conversations with over 20 customers and partners, indicates a modest improvement in cloud infrastructure spending. This trend is expected to continue into 2025, driven by an increased pace in the migration from on-premise systems to cloud services. Microsoft, with its impressive $3.3 trillion market capitalization and strong financial health score of 3.1 out of 5 according to InvestingPro, stands to benefit significantly from this shift.
The UBS analyst noted that the current spending trends in cloud infrastructure are more positive than they were three months prior. Partners of AWS and Azure have expressed a more optimistic outlook for 2025, with some companies experiencing a budget surge in the fourth quarter of 2024. These observations align with other software sector checks that began in October. For investors tracking Microsoft's performance, InvestingPro data shows the company is trading near its 52-week high, with a projected revenue growth of 14% for FY2025. However, concerns remain about spending in Europe and potential delays in data center capacity.
The report highlighted a significant uptick in discussions around moving from on-premise to cloud-based systems, particularly concerning legacy IT workloads and data utilization for AI initiatives. This shift is anticipated to accelerate in 2025, benefiting not only cloud infrastructure providers like Google (NASDAQ:GOOGL) Cloud, AWS, and Azure but also software firms such as Palantir (NASDAQ:PLTR), Datadog (NASDAQ:DDOG), Snowflake (NYSE:SNOW), and Databricks.
Despite the positive outlook, UBS anticipates limited immediate upside to investor expectations for AWS and Azure. AWS is expected to see a 20% increase in the fourth quarter of 2024, while Azure's growth is projected to be around 33-34%. Google Cloud, on the other hand, could see more significant growth as current consensus does not predict an improvement in year-over-year revenue growth.
The report concluded with a cautious note on the potential risks, including the weak economic situation in Europe, ongoing capacity challenges, and difficult comparisons in the first quarter of 2025 due to the number of days relative to the first quarter of 2024. Despite these factors, UBS expressed increased confidence in the Street estimates for the cloud segments in 2025.
In other recent news, Kopin Corp has caught the attention of investors and analysts due to its interest in the U.S. Army's recompetition process for Microsoft's Integrated Visual Augmentation System (IVAS) production contract. Lake Street Capital Markets analyst maintained a Buy rating on Kopin, indicating the company's growing traction in the defense sector. Kopin's defense revenue was up 109% YoY in the third quarter and 77% YoY year-to-date.
Microsoft Corporation (NASDAQ:MSFT) announced the immediate resignation of Christopher D. Young, Executive Vice President of Business Development, Strategy, and Ventures. Young will continue to assist with the transition until the end of March. No immediate changes to Microsoft's executive team or business strategy have been announced.
Microsoft also stands to benefit from the Stargate Project, a major investment initiative aimed at expanding AI infrastructure in the United States. The project is expected to invest up to $500 billion over the next four years. Morgan Stanley (NYSE:MS), Jefferies, and KeyBanc Capital Markets have reaffirmed positive ratings on Microsoft, despite a slight downgrade in stock target by Morgan Stanley.
Lastly, a $100 billion joint venture in the AI sector has been unveiled, involving SoftBank (TYO:9984) Group Corp., OpenAI, and Oracle Corp (NYSE:ORCL). The venture aims to fund AI infrastructure, with an eventual goal to raise funding to at least $500 billion. Microsoft Corp ., and Nvidia Corp . (NASDAQ:NVDA), among others, will provide technology support for this venture. These are recent developments in the tech industry.
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