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On Monday, Goldman Sachs reiterated its confidence in Microsoft Corporation (NASDAQ:MSFT), maintaining a Buy rating and a $500.00 price target for the tech giant’s shares. The reaffirmation comes despite reports that Microsoft may have delayed or canceled some artificial intelligence (AI) data center leases. According to InvestingPro data, Microsoft, currently valued at $3 trillion, trades at a P/E ratio of 32.47, reflecting the market’s high expectations for its AI initiatives. The stock is trading near its 52-week low, presenting a potential opportunity for investors interested in the AI space.
Kash Rangan, an analyst at Goldman Sachs, stated that the reports, while unconfirmed, underscore Microsoft’s commitment to being a responsible capital allocator, strategically investing in AI capacity. The company’s potential adjustments to its infrastructure investments suggest a focus on participating in individual investments only when the cost curve is favorable. This approach aligns with Microsoft’s strong financial health, earning a "GOOD" rating from InvestingPro’s comprehensive analysis, with particularly high scores in profitability metrics.
Goldman Sachs views the possible shift in capital expenditures (CapEx) towards shorter-lived assets as a positive sign, anticipating a possible upside for the fiscal year 2026 CapEx. This is based on the expectation that as Microsoft adjusts its investments to align with near-term demand, longer-lived components will come into play.
The potential pivot from first-party to third-party assets could signal a move to more inference-oriented capacity, which Goldman Sachs believes would benefit Microsoft’s long-term earnings. As general AI transitions from infrastructure to platform and application layers, the firm expects Microsoft’s earnings per share (EPS) growth to reaccelerate, driven by a moderation in CapEx growth and the high-margin inference/application phase of general AI.
Goldman Sachs highlights Microsoft’s attractive valuation, trading at 30 times the calendar year 2025 enterprise value to free cash flow (EV/FCF), which is notably lower than Oracle (NYSE:ORCL)’s 49 times. Oracle has a $97 billion book of business and a rising CapEx profile. Microsoft’s robust remaining performance obligations (RPO) of approximately $300 billion, rapidly growing AI revenue with a run rate of $13 billion (up 175% year-over-year), and commercial bookings increasing by 75% year-over-year further support the firm’s favorable outlook on Microsoft’s stock. Recent InvestingPro data shows impressive revenue growth of 15.04% and an EV/EBITDA multiple of 21.36, suggesting strong market confidence in Microsoft’s growth trajectory. For deeper insights into Microsoft’s valuation and growth metrics, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Alphabet (NASDAQ:GOOGL) Inc.’s Google has secured a $2.5 billion cloud deal with Salesforce (NYSE:CRM) Inc. This agreement marks a significant collaboration, allowing Salesforce to operate its customer-management software and AI products on Google Cloud over the next seven years. Meanwhile, Salesforce is also in discussions for a cloud agreement potentially worth over $1 billion with major providers, including Google, Oracle, and Microsoft, as it seeks to expand its AI offerings.
In a different development, OpenAI has banned several accounts linked to the development of a surveillance tool, reportedly connected to China. OpenAI’s policies prohibit the use of its AI models for unauthorized monitoring, reflecting its commitment to ethical AI use. Additionally, Cercano Management has reduced its stake in Microsoft Corp . by 36% while increasing its holdings in Alphabet, Meta (NASDAQ:META), and Apple (NASDAQ:AAPL), indicating a strategic shift in its investment portfolio.
Lastly, Microsoft announced the release of its Majorana 1 quantum chip, leading to a surge in quantum computing stocks. This new chip, featuring a Topological Core architecture, is expected to accelerate the development of industrial-scale quantum computers. The announcement has sparked optimism among investors, highlighting the potential impact of quantum computing advancements.
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