Microsoft shares fall after profits. Wall Street is still optimistic.

Non-GAAP earnings were $ 1.95 per share, beating Wall Street’s estimate of $ 1.78. The company performed strongly in all areas, exceeding expectations in its three main business segments. The aggregation of the outlook provided by the company for each segment (Microsoft does not release financial forecasts for all of the business) shows that revenue for the June quarter is expected to be around $ 44.5 billion, although ahead of the old Street consensus of $ 43 billion.

Gaming revenue grew 50% in the quarter, driven by 232% growth in Xbox hardware sales, LinkedIn revenue grew 25%; search-related advertising revenue, excluding traffic acquisition costs, increased by 17%; and Microsoft Surface laptops and whiteboards hardware revenue grew 12%. Revenue from the commercial cloud, a category that includes Azure and Office 365, among other items, was $ 17.7 billion, up 33%.

Still, by late morning, Microsoft shares were down 3.1% to $ 253.90. Why is the stock selling?

One factor is that, on a currency-adjusted basis, revenue from Azure, Microsoft’s public cloud business, increased 46%, a slight deceleration from the 48% growth in December quarter. Some investors found this result disappointing. There were also rumors on Wall Street that earnings would exceed estimates by an even greater margin than they did. And the stock had risen about 18% for the year up to Tuesday’s close.

But these are largely quibbles, and the analyst community is more optimistic than ever.

Morgan Stanley analyst Keith Weiss titled his quarterly report “The Case for Buying More from Microsoft.” He noted that business bookings were up 39% year-over-year, highlighting both a growing market and Microsoft’s growing share of IT spending.

“The increased confidence in the sustainability of growth has increased our EPS forecast, despite the increased investment behind that growth,” he wrote. Weiss maintained an overweight rating on the stock, raised his price target to $ 300 from $ 290, and said the stocks remained a “first choice.”

BofA Global Research analyst Brad Sills also repeated a buy note, while raising his target to $ 305, from $ 300. “Another strong quarter in Microsoft’s core businesses underscores the strong tailwinds of digital transformation and solid execution in place in key components of the Microsoft cloud,” he wrote. “Microsoft reported strong third quarter results, mainly driven by the momentum of Azure and the rise of Windows thanks to better PC shipments. “

JP Morgan analyst Mark Murphy marveled in a research note at the ability of the world’s largest software company to show growth in bookings like what you might see in a startup. Microsoft sees improving trends “across all industries, customer segments and geographies, supported by strong execution.”

Murphy said measurements of reservations and order books, which will generate recurring revenue, appear strong. He repeated an overweight rating and raised his target stock price to $ 270, from $ 245.

Piper Sandler’s Brent Bracelin advised buying the stock lower. Microsoft not only operates the world’s largest cloud computing company at a scale of over $ 70 billion, but it is gaining market share, growing faster than the cloud industry, and having an operating margin of over 40%, ”he wrote. Bracelin maintained an overweight rating on the stock and raised its price target to $ 305 from $ 300.

Write to Eric J. Savitz at eric.savitz@barrons.com