RBC Capital Markets analysts lifted their target price on Microsoft (NASDAQ:MSFT) stock from $450 to $500 on Friday, citing positive feedback from their recent investor meetings with Microsoft's Directors of Investor Relations.
The investment firm said AI remains a key growth driver for MSFT, noting the company's aggressive investment in this burgeoning field.
“While CapEx will likely continue to ramp and impact margins, Microsoft is following demand signals and is simultaneously focused on bringing the cost curve down,” analysts said in the note.
“Advances like GPT-4o, which is more efficient, and Maia (custom AI silicon) will help drive down the cost curve,” they added.
The firm's experience with cloud services is also seen as a key advantage, providing a shared architecture for all AI workloads.
Moreover, RBC pointed out that while the company's core cloud business is still in its early stages, there is a clear trend of companies migrating more workloads to the cloud.
Azure's growth, excluding AI, has accelerated in the second fiscal quarter.
“Importantly, core Azure is benefiting from the broader AI roadmap, as one-third of the 50K+ Azure AI customers are net new to Azure,” analysts noted.
The firm also reflected on Microsoft Copilot, which remains in its early stages but is sending positive demand signals and verticalized use cases.
Despite its nascent stage, Copilot's adoption is already outpacing that of E3 and E5, analysts noted, which have historically been significant growth drivers for the overall Office 365 suite.
At the same time, analysts at Macquire Equity Research also raised their price objective on MSFT stock from $460 to $475, citing their positive views on the company’s global distribution, Azure cloud, and Activision Blizzard’s 350 million gamers.
These catalysts can “unlock new subscription and mobile gaming opportunities,” Macquarie said.
“We estimate Game Pass subscriptions can generate $9.3bn in revenue by FY'26E in our base case, and up to $11.5bn in our bull case,” it highlighted.