On Thursday, UBS analysts increased the price target on Microsoft Corporation (NASDAQ:MSFT) shares to $525.00, up from the previous target of $500.00, while reaffirming a Buy rating on the stock. The adjustment reflects expectations of growth in Microsoft's Azure services.
The firm's commentary highlighted several key points influencing the decision. Firstly, the new capacity for Azure is expected to roll out during the second half of the year, leading to a prediction of Azure's growth being more significant towards the latter part. Consequently, the third-quarter growth estimate for Azure has been slightly reduced to 34.0% from 35.6%.
The analysts also addressed the CEO's remarks about an "AI winter," expressing confidence in Microsoft's positioning at the high end of the customer and workload spectrum. There appears to be no significant evidence of excess capacity among smaller cloud providers specializing in GPU services, which supports the positive outlook.
Furthermore, the analysts noted a trend of declining prices for Azure OpenAI API, which could affect Azure's AI revenues. However, the potential end of an exclusivity agreement in this area is seen as a likely positive development for Microsoft.
Lastly, they pointed out that there are increasing instances of price discounting for Microsoft 365 Copilot, which could have a marginal impact on the company's pricing dynamics.
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