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Investing.com - Microsoft (NASDAQ:MSFT) continues to face capacity constraints in its Azure cloud business, according to KeyBanc, which reiterated its Overweight rating and $630.00 price target on the stock. The tech giant, currently valued at over $4 trillion, has seen its shares trade near its 52-week high of $555.45, with InvestingPro data showing the stock is currently trading at $541.55.
The capacity issues, which were previously considered a fiscal 2025 challenge, have persisted into fiscal 2026, affecting the company’s growth potential. Azure reported 39% growth in constant currency and is projected to grow 37% in the next quarter. Despite these challenges, Microsoft has maintained strong overall revenue growth of 14.93% over the last twelve months, reaching $281.72 billion.
KeyBanc noted that both figures fell short of market expectations and would have been higher if Microsoft had sufficient space and compute capacity available to meet demand. InvestingPro analysis indicates Microsoft is trading at a high P/E ratio of 39.52, suggesting investors continue to expect significant growth despite these short-term constraints.
Despite significant capital expenditures of nearly $35 billion, including finance leases of $15.5 billion, the company has struggled to keep pace with customer demand for its cloud services. The firm indicated that spending forecasts are expected to increase. Microsoft operates with a moderate level of debt and maintains strong cash flows, with $71.6 billion in levered free cash flow over the last twelve months.
While the stock has reacted negatively to these developments, KeyBanc maintained that the quarterly results were "not thesis changing" for its overall investment outlook on Microsoft. According to InvestingPro, Microsoft maintains an overall financial health score of "GREAT" with particularly strong profitability metrics. Discover Microsoft’s complete financial picture and 18 additional ProTips through InvestingPro’s comprehensive Research Report, available for over 1,400 US equities.
In other recent news, Microsoft reported impressive financial results for its fiscal first quarter, with Azure and other Cloud Services revenue growing by 39% in constant currency. This strong growth, despite some capacity constraints, has led several analyst firms to adjust their price targets and ratings for the company. Oppenheimer reiterated an Outperform rating with a $630 price target, while Evercore ISI increased its target to $640, praising the quarter’s performance and future growth guidance. Wells Fargo also raised its price target to $700, maintaining an Overweight rating due to Azure’s robust performance. However, Stifel lowered its target to $640, citing Azure’s growth at the lower end of investor expectations, although it kept a Buy rating. Guggenheim maintained its Buy rating with a $586 price target, highlighting Microsoft’s traction with Azure and anticipated adoption of Microsoft 365 Commercial Copilot. These developments underscore the significant interest and varying perspectives among analysts regarding Microsoft’s financial trajectory and cloud services.
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