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Microsoft Boosted by Surface: What Wall Street Is Saying (Update 2)

Tickers in this article: MSFT

Updated from 9:39 a.m. EST to include thoughts from JPMorgan analyst.

NEW YORK ( TheStreet) --  Microsoft shares rose 2.2% to $36.85 in trading Friday after the software giant reported fiscal second-quarter results that blew past Wall Street estimates, thanks in large part to the Microsoft Surface, the tablet "no one" wanted.

During the quarter, Microsoft noted Surface sales more than doubled to $893 million from $400 million in the prior quarter. Also aiding results were the 7.4 million Xbox consoles sold, including 3.9 million Xbox Ones, which were released late in 2013. Both of those strong results helped Microsoft's devices and consumer unit grow revenue by 13% year over year to $11.91 billion.

For the full quarter, Microsoft generated $24.52 billion in sales and earned 78 cents a share. Those results handily beat estimates of analysts surveyed by Thomson Reuters , who were expecting $23.68 billion in revenue and earnings of 68 cents. 

As Microsoft struggles to find a replacement for CEO Steve Ballmer, the company is slowly but surely turning itself into the cloud computing giant many thought it would eventually become. Office 365 commercial seats and Azure customers both grew triple digits, with commercial cloud services revenue more than doubling, as the overall commercial segment grew revenue by 10% to $12.67 billion.

MSFT ChartMSFT data by YCharts

Wall Street analysts by and large were positive on the results, especially with the Surface performing so well during the quarter. Here's what several of them had to say:

UBS analyst Brent Thill (Buy, $43 PT)

"MSFT is growing a $50B enterprise business faster than peers half its size. CQ4 bookings +12% and revs +10% show significant outperformance vs large-cap peers and market share gains should continue with its software + cloud services and low TCO product strategy clearly resonating with customers. Nokia integration est'd late FQ3 could create some near-term est. confusion but we think stock gets to $43 on continued enterprise outperformance, rapid growth in its $2B+/yr enterprise cloud business, PC market stabilizing, troughing OM's and double digit dividend growth."

Deutsche Bank analyst  Karl Keirstead (Buy, $42 PT)

"Strong Xbox One debut helps topline momentum. MSFT's F2Q14 revenues of $24.5b were up a solid 11% and came in above our/Street expectations of $23.9b/$23.7b. While commercial revenues were up a solid 10%, the upside surprise came largely via a consumer Hardware revenue beat of ~$800m, driven by the strong debut of Xbox One and better-than-expected Surface tablet revenues, which more than doubled q/q to $893m. Despite the mix shift to hardware (19% vs. 13% last year), strong margin controls helped to offset weak hardware gross margins of just 9%. Deferred revenues were lower than Street, but were impacted by the timing of renewals in the qtr, as the unbilled balance reached an all time high of ~$23b."