Microsoft Corp. ( MSFT ) shares received a big price target increase a week before the software giant reports its quarterly earnings.
Microsoft Analyst: Piper Sandler analyst Brent Braslin reiterated his Overweight rating on Microsoft shares and raised his price target to $485 from $465. The updated price target suggests the stock has room for upside of about 10%.
While it took Microsoft 13 years (from fiscal 2010 to fiscal 2023) to achieve $100 billion in annual revenue from its cloud services business, the next $100 billion in cloud revenue could be achieved in just three years, Braslin said in the memo. He noted that capital expenditures and leases exceeded $176 billion in those 13 years. As a result, significant data center investments should be scaled back to support the potential doubling of Microsoft cloud revenue to more than $200 billion by the end of fiscal 2026, he said.
“Growth investors need to look beyond near-term concerns about AI overload and through the lens of a broader cloud transformation underway that could help sustain double-digit revenue and profit growth through 2030,” the analyst said. He expects AI-assisted cloud mix to expand to 63% by fiscal 2026 from 53% today, well above the 10% it held in fiscal 2016.
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Azure, which accounted for 33% of sales, is growing at more than 30% and approaching an $85 billion run rate, Braslin said. Analysts expect Azure revenue to grow 32% in the June quarter excluding the impact of currency fluctuations, versus guidance of 30% to 31%, with AI contributing at least 7 percentage points of the growth.
The analyst noted that the majority of Microsoft AI is in IaaS rather than SaaS, 95% vs. 5%, and he expects capex and leasing to exceed $19 billion in the June quarter.
As a result, the analyst raised his 2025 earnings per share forecast by 17 cents due to slightly higher growth assumptions, and raised his 2025 P/E multiple to 34 from 33 due to strong cloud momentum. The upward revision to the target price is to reflect the revised earnings forecast and P/E multiple, he added.
Microsoft is scheduled to report its fourth-quarter fiscal 2024 financial results after the market closes on Tuesday, July 30. Analysts on average expect the company to report earnings per share of $2.93 on revenue of $64.35 billion. This compares to earnings per share of $2.69 on revenue of $56.19 billion in the same period last year.
Microsoft Price Action: Microsoft shares closed up 1.33% at $442.94 on Monday, according to data from Benzinga Pro. The stock has risen more than 18% year to date.
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