Microsoft topped earnings — now they have to nail this

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Microsoft may have blown away Wall Street's earnings predictions, but it has another key challenge ahead, market watchers told CNBC's "Squawk Alley" on Wednesday.

"LinkedIn is absolutely critical—they have to nail this," said Brent Thill, managing director at UBS. "This is their biggest deal they've ever done. It's three times larger than the last acquisition."

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Microsoft offered to buy LinkedIn in June for $26.2 billion—a huge deal after a mixed track record of buys for the company, Thill said. Microsoft's past failures may leave investors skeptical of the LinkedIn deal, but Thill said he thinks CEO Satya Nadella knows what it takes to preserve the culture of LinkedIn.

Now LinkedIn has opened up the pathway to human resources for Microsoft, Thill said. There could be some opportunity for acquisitions, Thill said.

Thill's comments come as Wall Street digests Microsoft's latest earnings report, when it posted fiscal fourth-quarter earnings per share of 69 cents. Revenue came in at $22.64 billion, as its key cloud product, Azure, saw revenue grow 102 percent.

Shares of the software company bounced 5 percent on Wednesday, as the results alleviated some concerns about whether cloud could offset the company's transitioning server business, said Walter Price, managing director, senior analyst, and portfolio manager on the AllianzGI technology team.

Price said he thinks Microsoft is a solid no. 2 in the cloud space, while Thill said Microsoft is a close second, behind Salesforce.com, when it comes to financials and customer relationship management.

"They're moving to the cloud, and they're growing really rapidly," Price said. "That's impressive."

Disclosure: Microsoft is an investment banking client of UBS.

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