On Friday, Evercore ISI reiterated its Outperform rating on Microsoft stock (NASDAQ:MSFT) with a steady price target of $500.00. The firm's analysis suggests that Microsoft could experience a 'mini revenge trade' in 2025, following a mixed performance in the previous year.
Despite a 12% increase in 2024, Microsoft shares saw a 7% decline from December 17 to December 31. According to InvestingPro data, analyst consensus remains strongly bullish with a rating of 1.41 (where 1 is Strong Buy), with price targets ranging from $420 to $650.
The firm's positive outlook is based on several factors anticipated for the upcoming year. They expect Azure, Microsoft's cloud computing service, to accelerate in the first half of 2025. Additionally, a potential moderation in capital expenditures later in the year could lead to an increase in free cash flow growth in 2026.
The adoption of Copilot, which is expected to gain momentum as customers organize their data, is also likely to drive an increase in Microsoft 365 Average Revenue Per Customer (ARPC). InvestingPro data shows Microsoft's impressive revenue growth of 16.4% over the last twelve months, with a robust gross profit margin of 69.4%. Get access to 12+ more exclusive ProTips and comprehensive financial metrics with InvestingPro.
Evercore ISI highlighted Microsoft's consistent performance, noting that the company has not underperformed both the S&P 500 and the IGV since 2012. The analysis included a review of the four instances over the past 12 years when Microsoft's performance lagged behind these indexes and its subsequent recovery. On average, Microsoft outperformed by 22% and saw a 42% absolute increase in the year following underperformance.
The firm acknowledges that Microsoft, with a market cap of $3.11 trillion, is a much larger entity to influence compared to previous years. However, they believe that Microsoft's extensive range of enterprise products, recurring revenue base, and strong balance sheet position the company for a potential rebound in 2025. Evercore ISI's confidence in Microsoft's 'bounce back' capability reflects an optimistic view of the company's future performance in the market. The company has maintained dividend payments for 23 consecutive years, demonstrating consistent shareholder returns alongside its growth trajectory.
In other recent news, Microsoft is diversifying its artificial intelligence models for its 365 Copilot product to cut costs, according to Reuters. The tech giant is incorporating both internal and third-party AI models into its product, reducing its reliance on OpenAI, a firm it has significantly backed in the past. This strategic shift aims to decrease operational expenses and potentially transfer cost savings to customers.
Additionally, Loop Capital has increased the price target for Microsoft shares to $550, maintaining a Buy rating, while UBS analysts raised their price target to $525, also reiterating a Buy rating. These adjustments reflect expectations of growth driven by Microsoft's investments in generative artificial intelligence (GenAI) and its Azure services, respectively.
In other developments, Microsoft CEO Satya Nadella indicated that the company no longer faces chip supply constraints, contrasting with the position of AI chip supplier Nvidia (NASDAQ:NVDA), who expects demand for their chips to exceed supply into 2025. Also, the United States is preparing to introduce regulations designating tech companies, including Microsoft, as global gatekeepers for AI chips distribution. Lastly, Microsoft shareholders voted against a proposal to add Bitcoin to its balance sheet at the annual meeting.
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