On Thursday, Citi reaffirmed its positive stance on Microsoft Corporation (NASDAQ:MSFT) stock, maintaining a Buy rating and a price target of $500.00. The endorsement comes after a review of Microsoft's updated key performance indicators (KPIs) in anticipation of fiscal year 2025 reporting.
The updates, which are more comprehensive than previous years, integrate key components of Microsoft 365 (M365) within the Productivity and Business Processes (PBP) segment. This realignment boosts PBP segment revenue, offsetting decreases in the Intelligent Cloud (IC) and More Personal Computing (MPC) segments.
The reclassification of Azure's per-user revenue streams, such as Enterprise Mobility + Security (EMS) and PowerBI, to the M365 Commercial Cloud/PBP segment, is described as a mechanical adjustment that leaves total revenue, operating income, and earnings per share (EPS) unaffected. However, it indicates increased stability in Azure's consumption business.
Azure's consumption growth remained consistent at 35% year-over-year in constant currency in the fourth quarter, aligning with the third quarter's performance.
Citi's analysis suggests that the Azure consumption business is exhibiting steady growth, which contradicts the conservative guidance of a 1-2 percentage point deceleration in growth.
This guidance was unexpected given the removal of the slower-growing per-user business and comments from Microsoft's CFO Amy Hood regarding consistent consumption trends in the first half of the year, similar to the fourth quarter.
The financial institution's commentary reflects its anticipation of continued robust performance from Microsoft's cloud services, particularly Azure. This segment's growth is a key factor in the firm's evaluation of Microsoft's stock.
Despite the internal shifts in revenue reporting segments, Citi's outlook for Microsoft remains unchanged, with a strong Buy rating and a significant price target suggesting confidence in the tech giant's financial trajectory.
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