On Thursday, Evercore ISI maintained its Outperform rating on Microsoft Corporation (NASDAQ:MSFT) stock with a steady price target of $500.00. The decision comes after Microsoft announced F1Q results that surpassed expectations, showcasing a robust 16% growth in its M365 Commercial Cloud and a 34% increase in Azure growth on a constant currency (c/c) basis.
Despite the strong performance, Microsoft's shares faced some downward pressure after-hours due to Azure's growth aligning closely with the anticipated 33% increase, as in-period revenue recognition contributed a 1-point boost.
The guidance for Azure was slightly below market expectations, projected at 31-32% compared to the forecasted 32-33%. This conservative outlook is attributed to the deferment of some AI capacity to the second half of the fiscal year. Nonetheless, Evercore ISI suggests that Azure consumption will likely maintain stability from F1Q to F2Q.
Microsoft has reaffirmed its prediction for Azure's accelerated growth in the latter half of the fiscal year, hinting at potential share purchasing opportunities. This is bolstered by the anticipation that Microsoft's AI services will achieve a $10 billion run-rate in F2Q and experience a significant increase in capacity and adoption by calendar year 2025.
Investors have expressed concerns regarding the level of capital expenditure, which could impact gross margins. However, Evercore ISI believes that Microsoft is capable of balancing operating expenses to mitigate these concerns.
The firm concludes that Microsoft's long-term prospects in the Commercial sector remain promising, as the company continues to expand its cloud market share and scales its AI services. The expectation is for Microsoft to sustain strong growth in both revenue and earnings, supporting the reiterated Outperform rating and $500 price target.
In other recent news, Microsoft Corporation has been the focus of several analyst adjustments. DA Davidson revised its price target for the tech giant to $425 from $475, while maintaining a Neutral rating. This follows Microsoft's recent Q1 2025 earnings report, which showed a slowdown in Azure cloud services growth, a trend expected to continue into the next quarter. Despite this, DA Davidson anticipates growth acceleration in the latter half of the fiscal year as Microsoft expands its infrastructure.
Citi, on the other hand, maintained its Buy rating on Microsoft with a steadfast price target of $497, despite acknowledging mixed quarterly performance. The firm expects potential upside to their projections for Azure's growth in the latter half of the year. Barclays also reiterated its Overweight rating on Microsoft, with a steady price target of $475, expressing confidence in Microsoft's strategy despite short-term supply issues impacting AI capacity.
In recent developments, Microsoft reported a 16% increase in revenue to $65.6 billion for the fiscal first quarter, exceeding Wall Street projections. This has been attributed to the company's expansion in data center capacity and rising demand for AI technologies. However, the company's second-quarter guidance fell short of analyst expectations due to new capacity constraints related to a collocation partner, potentially slowing Azure's growth.
Tech giants Microsoft and Meta (NASDAQ:META) have announced increased investments in AI data centers, sparking concerns among investors. Microsoft's capital spending rose 5.3% to $20 billion in the first fiscal quarter, surpassing its entire annual expenditure up until fiscal 2020. Despite these concerns, both Microsoft and Meta emphasized the early stage of the AI cycle and highlighted the long-term potential of AI technology.
InvestingPro Insights
Microsoft's strong financial performance, as highlighted in the article, is further supported by real-time data from InvestingPro. The company's revenue growth of 15.67% over the last twelve months aligns with the robust 16% growth in M365 Commercial Cloud mentioned in the report. This growth is complemented by an impressive EBITDA growth of 26.68% over the same period, indicating Microsoft's ability to scale efficiently.
InvestingPro Tips reveal that Microsoft has raised its dividend for 19 consecutive years, demonstrating a commitment to shareholder returns. This is particularly relevant given the company's strong financial position and growth prospects in AI and cloud services. Additionally, Microsoft is noted as a prominent player in the Software industry, which supports Evercore ISI's optimistic outlook on the company's long-term prospects in the Commercial sector.
For investors seeking a deeper understanding of Microsoft's valuation and growth potential, InvestingPro offers 14 additional tips. These insights could provide valuable context for assessing the company's $500 price target and its position in the evolving AI and cloud computing landscape.
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