Microsoft back on offense as quarter shows strong AI demand. Wall Street sees big stock gains ahead
Microsoft appears bound for a bounce as its latest quarterly report shows signs its artificial intelligence strategy will power revenue higher in the future, according to several analysts on Wall Street. The software giant earned $4.27 per share after adjustments in the fiscal third quarter quarter, topping the $4.06 per share expected by analysts surveyed by LSEG. Its revenue came in at $82.89 billion, outpacing the consensus estimate of $81.39 billion. Despite the stronger-than-expected report , shares declined nearly 5% in Thursday’s session. One concern is rising spending. Microsoft expects its capital expenditures to balloon to $190 billion by the end of this year due to surging memory costs. Investors also are skeptical about the pace of its future growth. However, some analysts found evidence to be more bullish on the stock. “We see this quarter as a meaningful first step in reversing the stock’s multi-quarter period of underperformance as Microsoft disclosed several milestones to directly address medium-term investor concerns,” Goldman Sachs analyst Gabriela Borges said Thursday in a note to clients. She cited accelerating revenue growth at its Azure and Microsoft 365 businesses, its evolving pricing model and the tangible data the company shared for her view. Borges has a buy rating on Microsoft with a $610 price target on its shares, implying 44% upside from Wednesday’s close. Microsoft is fresh off its worst quarterly performance since 2008, largely due to investors’ concerns that the traditionally software-focused stock could be battered by AI disruption. However, the firm unveiled a new corporate strategy embracing AI in 2024, and it is showing signs of making meaningful advances in that realm, with its cloud-computing business accelerating in the latest reported quarter. “We are constructive on Microsoft’s positioning in the AI ecosystem and see a catalyst-rich path in 2H,” Borges said. Here’s what shops on the Street are saying about Microsoft following its latest report. Citi: Buy, $620 price target Analyst Tyler Radke’s price target implies 46% upside from Wednesday’s close. “Strong 3Q results … show the company’s core growth drivers (Azure, M365 Copilot) are back in the driver seat and hitting an inflection point that is resulting in accelerating growth. While the outlook was mixed with slightly negative EBIT revisions for 4Q, stemming from weaker PCs from higher memory costs, we believe numbers for 4Q/FY27 are sufficiently reset to work higher from here. Importantly, the company’s strong backlog (Commercial RPO growth of 26% Y/Y), improving capacity execution is giving better line of sight to accelerating Azure and Copilot revenue which we see improving total consolidated revenue growth from the mid-teens today to 20%+ over the coming years.” JP Morgan: Overweight, $550 The price target set by analyst Mark Murphy suggests 30% upside from shares’ closing price on Wednesday. “Microsoft enjoys a broad portfolio of strategic products, sits at the intersection of digital transformations and cloud adoption, and CIOs view it as the most critical and indispensable IT megavendor. While MSFT shares are valued at a premium on a P/E basis, we believe this premium is warranted based on faster recent organic revenue growth, robust [free cash flow] generation, a relatively stronger position within the enterprise, and our belief that Microsoft has pulled ahead of the pack with a state-of-the art cloud platform.” Wells Fargo: Overweight, $625 Analyst Michael Turrin’s target is 47% higher than the price at which Microsoft closed Wednesday. “Investments more clearly paying off as M365 and Azure each guided to acceleration & MSFT’s AI business has now reached $37B (growing > 120%). Copilot narrative improving given pace of seat adds & confidence around usage/improvements” Barclays: Overweight, $545 The price target from analyst Raimo Lenschow implies 28% upside from Wednesday’s close. “We see MSFT shares starting to react better again. Azure is seeing a modest growth acceleration from here and CapEx comments show healthy expansion driven by ongoing AI capacity shortage. In other words, Q3 & guidance showed that MSFT remains well positioned to benefit from the ongoing AI momentum.”
