Powell’s speech, Nvidia’s chips, Meta deal - what’s moving markets
On Thursday, KeyBanc Capital Markets reaffirmed its Overweight rating on Microsoft Corporation (NASDAQ:MSFT) with a steady price target of $575.00. The firm’s analyst cited Microsoft’s strategic response to challenges posed by the DeepSeek development as a key factor in maintaining the rating. According to InvestingPro data, Microsoft, currently trading at $442.33, maintains a "GREAT" financial health score and trades near its 52-week high. Despite a downturn in the stock and a reduction in out-year estimates due to underperformance in Microsoft’s most crucial business segment, the analyst highlighted the company’s adept handling of the situation.
Microsoft has integrated DeepSeek into its Azure and Copilot offerings, demonstrating adaptability and a strategic approach to capital expenditure as it approaches the end of fiscal 2025. With impressive revenue growth of 16.44% over the last twelve months and a market capitalization of $3.29 trillion, the company aims to balance the potential benefits of disruptive AI in its applications business while minimizing reliance on extensive AI infrastructure build-out, amid increasing concerns over return on investment.
KeyBanc’s stance is cautious regarding the long-term influence of DeepSeek on the AI landscape, suggesting that AI capital expenditures may remain more substantial than some investors expect. The firm is consciously avoiding an extreme reaction to the recent developments.
The timing of DeepSeek’s emergence has undeniably exerted additional pressure on Microsoft this quarter, affecting both performance metrics and executive commentary. While the company stumbled in its quantitative reporting, it succeeded in conveying its strategic direction and resilience, leading KeyBanc to uphold its positive outlook on Microsoft stock. For deeper insights into Microsoft’s valuation and growth prospects, InvestingPro subscribers can access comprehensive analysis, including 16 additional ProTips and detailed financial metrics in the Pro Research Report.
In other recent news, Microsoft Corporation reported a 12% year-over-year increase in second-quarter revenue, reaching $69.6 billion. Despite the positive earnings, Microsoft’s Azure cloud service growth was at the lower end of projections, with third-quarter guidance also falling below consensus. Analysts from Guggenheim maintained a neutral rating on the company, while Bernstein and Mizuho (NYSE:MFG) Securities adjusted their price targets, and Goldman Sachs maintained a buy rating. Microsoft’s Chief Financial Officer, Amy Hood, announced that capital expenditure levels will remain consistent for the next two quarters. The company’s recent developments also include a significant commitment from OpenAI, which contributed to a 33% year-over-year growth in remaining performance obligations. Microsoft continues to heavily invest in artificial intelligence, despite concerns about an imbalance between capital allocation and actual usage of the technology.
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