Bank of America just raised its EUR/USD forecast
On Thursday, JPMorgan reiterated its Overweight rating on Microsoft Corporation (NASDAQ:MSFT) with a steady price target of $465.00. The firm’s analysts noted that despite near-term Azure growth concerns, particularly for the upcoming March and June quarters, Microsoft’s commercial bookings surged, largely due to a significant commitment from OpenAI. According to InvestingPro data, Microsoft currently trades at $442.33, with analysts maintaining a strong buy consensus and price targets ranging from $420 to $650. The stock’s robust financial health score of "GREAT" on InvestingPro suggests solid fundamentals supporting JPMorgan’s bullish stance.
Microsoft reported second-quarter revenue of $69.6 billion, a 12% increase year-over-year, slightly above consensus estimates. The company’s operating margin expanded by 190 basis points year-over-year to 45.5%, with operating income approximately 4% above consensus. For the third quarter of fiscal year 2025, Microsoft has guided revenue to $68.2 billion, which is 2% below the consensus of $69.8 billion. This includes an incremental $1 billion foreign exchange headwind since its prior assumption. Operating margin guidance for Q3 is approximately 44%, compared to a consensus of around 43%.
Azure’s growth for the second quarter was at the lower end of Microsoft’s guided range of 31-32% in constant currency, and the company’s guidance for the third quarter is similarly below the consensus estimate of 33%. Microsoft has pointed to challenges in non-AI go-to-market execution, especially in reaching customers through indirect partner channels, as a factor in this performance. Despite these challenges, InvestingPro data shows Microsoft maintaining impressive overall revenue growth of 16.44% over the last twelve months, with a strong gross profit margin of 69.35%. For detailed analysis of Microsoft’s growth metrics and 16+ additional ProTips, investors can access the comprehensive Pro Research Report. While the AI segment of Azure remains robust, the company has not recommitted to the second-half Azure acceleration in constant currency terms that it had suggested 90 days prior.
The exceptional growth in commercial bookings, which increased by 75% in constant currency, was primarily attributed to a new large Azure commitment from OpenAI, which contributed to Microsoft’s remaining performance obligations (RPO) balance growing to $304 billion, a 33% year-over-year increase. This commitment is seen as a positive signal for the standing of Microsoft’s partnership with OpenAI.
Other positives include the contribution of M365 Copilot, which aligns with JPMorgan’s survey findings. Microsoft’s operating margin guidance for the midyear has been revised from an expected decrease to a slight increase, reflecting both headcount discipline and a strategic focus on higher-quality contracts.
In terms of capital expenditures, Microsoft anticipates maintaining a similar level for the next two quarters and expects CapEx growth to slow in fiscal year 2026. The company’s strategy seems to be adapting to a potential shift in value from the large language model (LLM) component to the application and infrastructure layers.
JPMorgan concludes that while Microsoft faces AI capacity constraints and challenges in scaling Azure, the company is laying the groundwork for long-term success in areas such as security, Teams, Power Apps, and its investments in OpenAI and ChatGPT. The firm underscores Microsoft’s commitment to efficiency and sees the tech giant as a structural share gainer amid enduring trends of modernization and automation. With a market capitalization of $3.29 trillion and trading at a P/E ratio of 36.48, Microsoft remains a dominant force in the technology sector. InvestingPro’s comprehensive analysis, including detailed valuation metrics and growth forecasts, helps investors make informed decisions about this tech leader’s future prospects.
In other recent news, Morgan Stanley (NYSE:MS) has adjusted the price target for Microsoft, reducing it to $530 from $540, while maintaining an Overweight rating. The adjustment comes amid concerns about increased foreign exchange headwinds and potential losses associated with OpenAI. These are among the recent developments in the technology sector. Meanwhile, DA Davidson holds Microsoft at a Neutral rating with a $425 target, reflecting a cautious stance on the tech giant’s stock. BofA Securities maintains a Buy rating for Microsoft with a $510 target, expressing confidence in the company’s potential to capitalize on the growing AI market. On the other hand, Citi maintains a Buy rating on ServiceNow (NYSE:NOW) stock with a $1,432 target, highlighting the company’s rapid growth in its NOW-Assist/AI products. Lastly, Euroclear announced a seven-year strategic partnership with Microsoft to enhance its business ecosystem and technology infrastructure, leveraging Microsoft’s cloud technologies and generative AI.
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