On Friday, TD Cowen reiterated its Buy rating on Microsoft Corporation (NASDAQ:MSFT) stock, with a price target of $475.00. Currently trading at $445.42, Microsoft maintains a "GREAT" financial health score according to InvestingPro analysis. The firm's analyst, J. Derrick Wood, provided insights ahead of Microsoft's second-quarter earnings report due on January 29. Wood highlighted several factors influencing the company's performance, including shifts in workloads between Microsoft, OpenAI, and Oracle, adjustments in Copilot's pricing and packaging strategies, and varied feedback from Washington D.C. sources.
Despite these challenges and a deceleration quarter in December, Wood expects Microsoft to deliver an in-line quarter and guidance on a constant currency basis. The company's strong revenue growth of 16.44% and robust gross margin of 69.35% provide some confidence. However, he anticipates foreign exchange to pose an additional challenge, leading to slightly lower estimates than previously projected. The analyst also suggested that the market's margin expectations for the fourth quarter of 2025 and the fiscal year of 2026 might be slightly optimistic, as he foresees further gross margin pressure.
Microsoft shares have remained flat since the last quarterly report and are currently trading at approximately 30 times the fiscal year 2026 estimated price-to-earnings ratio, with a current P/E of 36.58x. The guidance of Azure's growth deceleration in December is seen as a current overhang on the stock. Wood believes that the complex dynamics at play are likely to keep Microsoft shares within a narrow range in the near term, but maintains the Buy rating and a price target that implies a valuation of around 32.5 times the fiscal year 2025 estimated earnings. For deeper insights into Microsoft's valuation and 15+ additional ProTips, visit InvestingPro to access the comprehensive Pro Research Report.
In other recent news, Microsoft Corporation continues to make significant strides in the technology sector. Analysts from KeyBanc Capital Markets maintain a $575 price target on Microsoft's stock, noting a substantial increase in Azure instances and impressive overall revenue growth. UBS analysts, however, see limited immediate upside for Azure, despite a positive outlook for cloud infrastructure spending. Microsoft's Executive Vice President of Business Development, Strategy, and Ventures, Christopher D. Young, has resigned effective immediately, with no immediate changes to the executive team or business strategy announced.
The tech giant is also set to benefit from the Stargate Project, an investment initiative aiming to expand AI infrastructure in the U.S. with a proposed investment of up to $500 billion over the next four years. Microsoft, alongside Nvidia Corp . (NASDAQ:NVDA), will provide technology support for a $100 billion joint venture in the AI sector involving SoftBank (TYO:9984) Group Corp., OpenAI, and Oracle Corp (NYSE:ORCL). This venture aims to fund AI infrastructure, with a goal to raise funding to at least $500 billion.
In other developments, Kopin Corp has expressed interest in the U.S. Army's recompetition process for Microsoft's Integrated Visual Augmentation System (IVAS) production contract, leading to a Buy rating from a Lake Street Capital Markets analyst. These are the recent developments in the tech industry.
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