Bullboard - Stock Discussion Forum Converge Technology Solutions Corp T.CTS

Alternate Symbol(s): CTSDF

Technology Information Technology Services

Converge Technology Solutions Corp. is a services-led, software-enabled, information technology (IT) and cloud solutions provider. Its global approach delivers advanced analytics, artificial intelligence (AI), application modernization, cloud platforms, cybersecurity, digital infrastructure, and digital workplace offerings to clients across various industries. It supports these solutions with... see more

Add To Watchlist

TSX:CTS - Post Discussion

Converge Technology Solutions Corp > TD

View:

Post by retiredcf on Apr 26, 2024 8:36am

TD

MICROSOFT Q3/F24: GENAI FUELS STRONG DEMAND; CLOUD MIGRATION ACTIVITY PICKS UP

THE TD COWEN INSIGHT

We view Microsoft's results as potentially slightly positive for Softchoice, given the encouraging underlying demand trends it is seeing for GenAI, cloud migration activity, and Copilot. Although Converge's Microsoft business is relatively smaller, we think the aforementioned demand trends, alongside slightly better-than-expected PC market dynamics could bode well for the company.

Impact: POTENTIALLY SLIGHTLY POSITIVE read-through for Softchoice and Converge Q3/F24 results slightly better-than-expected. Microsoft reported revenue of $61.9B, up 17% in cc, slightly ahead of consensus. Key highlights included:

Server products and cloud services revenue 24% in cc. Azure and other cloud services revenue grew 31% in cc, with AI services contributing 700 bps vs. the 600bps contribution last quarter. Management hinted that contribution from AI could potentially have been higher had it not been for capacity constraints (i.e., demand for inferencing outstripping available supply).
Office Commercial products and cloud services grew 12% in cc, with Office 365 commercial revenue up 15% in cc, slightly below their two-year averages.
Windows OEM revenue grew 11% in cc and Windows Commercial products and cloud services revenue grew 12% in cc. Management mentioned slightly better-than-expected PC market dynamics.

Encouraging Azure and Copilot trends. Microsoft mentioned it is seeing an acceleration in the number of large Azure deals across industries, with the number of $100mm+ Azure deals up ~80% y/y and $10mm+ deals up >2x y/y.

It also saw improving cloud migration trends across industries and geographies, with Azure growth ex-AI growing 24% in cc, up from 22% last quarter.

The company also revealed that ~60% of the Fortune 500 companies now use Copilot, with increased usage intensity trends.

Guidance calls for continued cloud growth at current trend. Q4/F24 guidance calls for Azure revenue growth in cc to be similar to Q3/F24 levels (~30%-31% y/y growth). Microsoft also expects to "materially increase" capex on a sequential basis to meet its current cloud and AI- related demand.

As well, the company guided to low-to-mid-single digit growth in OEM revenue, as PC market unit volumes continue to recover.

GCP growth re-accelerating. Alphabet also reported its Q1/F24 results yesterday. Google Cloud revenues were $9.6B, up 28% y/y (vs. 26% last quarter) and 4% q/q, helped by AI- driven GCP infrastructure/solutions and Workspace demand. Amazon's updated F2024 capex guidance implies ~50% y/y growth, as it invests to meet strong GenAI/cloud demand.