HSBC has raised its price target for Microsoft (NASDAQ:MSFT) to $533 from $529 in a note Thursday, reflecting confidence in the company's projected revenue acceleration in the second half of FY2025.
The upward revision comes despite 1QFY25 guidance being "marginally below" expectations. HSBC maintains a Buy rating on the stock.
Microsoft's 4QFY24 results were in line with expectations, with revenue reaching $64.727 billion, up 15.2% year-over-year, slightly above the consensus estimate of $64.375 billion.
HSBC notes that the operating margin remained stable at 43.14%, which is in line with its estimate and slightly above the consensus of 42.67%.
Diluted EPS was $2.95, a 9.7% increase year-over-year, which was just below HSBC's estimate of $3.00 but above the consensus of $2.94.
The bank also noted that Azure's growth continued to be robust at 29% year-over-year for 4QFY24, although this marked a slight deceleration from the previous quarter's 31%.
Microsoft has guided for constant currency Azure growth of 28-29% in 1QFY25, consistent with the trailing four-quarter average of 29.25%. The company expects Azure growth to accelerate in the second half of FY2025 as additional AI capacity becomes available, addressing current capacity constraints and rising demand.
Despite 1QFY25 revenue guidance of $64.3 billion, which falls below the previous consensus of $65.377 billion, HSBC remains optimistic about Microsoft's future performance.
Analysts expect growth to pick up in the latter half of FY2025, driven by expanded AI capacity and greater AI adoption, which will enhance software application demand and pricing.
HSBC continues to view Microsoft as a core holding in the technology sector, citing the company's strong exposure to AI and cloud infrastructure, robust revenue growth, solid margin profile, and attractive valuation.
At the new price target of $533, Microsoft shares would trade at 40 times HSBC's next 12-month non-GAAP EPS estimate of $13.32, implying a 26% upside.