Bernstein cuts Microsoft stock price target to $511 from $516

On Thursday, Bernstein SocGen Group adjusted its price target on Microsoft Corporation (NASDAQ:MSFT) shares, reducing it slightly from $516.00 to $511.00. Despite the decrease, the firm reiterated its Outperform rating on the tech giant’s stock, which currently trades at a P/E ratio of 36.5 and near its 52-week high of $468.35. The adjustment followed Microsoft’s mixed financial results for the second quarter of fiscal year 2025, which included both high points and areas that fell short of expectations. According to InvestingPro analysis, Microsoft’s current market valuation appears to be fairly priced relative to its Fair Value.

Bernstein’s analysis highlighted Microsoft’s strong performance in specific areas, such as artificial intelligence (AI) and Copilot revenues. AI revenue exceeded projections, reaching a $13 billion run rate compared to the anticipated $10 billion plus. Copilot revenue also surpassed expectations, a notable achievement considering many investors had previously discounted this segment. With an impressive profit score of 4.27 out of 5 on InvestingPro, and strong analyst consensus, Microsoft reported improvements in operating margin and projected a significant slowdown in capital expenditures (CAPEX) through fiscal year 2026.

Despite these positive indicators, the core Azure non-AI revenue and the revenue guidance did not meet investor expectations, contributing to a roughly 5% decline in Microsoft’s stock price. Bernstein remains optimistic about Microsoft’s future prospects, citing potential for revenue growth in the teens, GAAP margins in the mid-40s that are on an upward trajectory, and a steady return of cash to shareholders.

The firm’s rationale for the price target reduction was based on a valuation multiple adjustment, decreasing from 30x to 29x, as well as updated estimates moving forward. Bernstein expressed confidence that the issues surrounding Azure’s core services would be addressed and that growth would pick up again, making Microsoft a desirable investment when that turnaround occurs.

In other recent news, Microsoft has reported a second-quarter revenue of $69.6 billion, marking a 12% increase year-over-year. The company’s commercial bookings saw a significant increase due to a commitment from OpenAI, contributing to a 33% year-over-year growth in remaining performance obligations. Despite Azure’s growth aligning with investor expectations, the actual growth for the third fiscal quarter did not meet the high expectations set following the second fiscal quarter’s underperformance.

Analysts from various firms have shared their views. Mizuho (NYSE:MFG) Securities has reduced Microsoft’s price target from $510 to $500 while maintaining an Outperform rating. Goldman Sachs maintained a Buy rating and reiterated its $500 target. JPMorgan maintained an Overweight rating with a steady price target of $465.00. Morgan Stanley (NYSE:MS) reduced its price target for Microsoft to $530, citing concerns about increased foreign exchange headwinds and potential losses associated with OpenAI.

Microsoft’s Chief Financial Officer, Amy Hood, stated that the company’s capital spending for the current quarter and the upcoming one would hold steady at approximately $22.6 billion. The company anticipates maintaining similar capital expenditure levels for the next two quarters. Microsoft’s strategy seems to be adapting to a potential shift in value from the large language model component to the application and infrastructure layers.

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