Microsoft stock price target cut to $475 by Stifel analysts

On Thursday, Stifel analysts adjusted their price target for Microsoft Corporation (NASDAQ:MSFT), currently trading at $396.89, reducing it to $475 from a previous target of $515. They maintained a Buy rating on the stock, aligning with the broader Wall Street sentiment - InvestingPro data shows a strong analyst consensus rating of 1.4 (Strong Buy). The revision followed discussions with Microsoft’s Investor Relations Team earlier in the week, where the focus shifted from the potential upside of generative AI (genAI) to the company’s capability to translate significant capital expenditures (capex) into accelerating revenue growth. According to InvestingPro’s Fair Value model, Microsoft appears to be trading near its fair value.

The analysts highlighted that Microsoft management reaffirmed its guidance for fiscal year 2025 capex, which includes cash and leases, to be more than $87 billion, marking an increase of over 55% year-over-year. Despite the substantial investment, Microsoft maintains robust financial health, with InvestingPro reporting strong revenue growth of 15.04% and healthy profit margins. They also noted that while growth is expected to slow down in fiscal year 2026, the exact amount of additional capex remains a topic of debate.

Stifel pointed out the impressive growth of Azure’s genAI revenue, which is on a $10 billion run rate and grew by 157% in December. Based on this, the firm anticipates Microsoft will likely add $25-30 billion in incremental capex in fiscal year 2026, which would be around 30% growth, aligning with Azure’s growth rate. They referenced the original Azure build-out period, which took approximately four years before commercial cloud revenue outpaced capex growth by two times.

The analysts observed that most of Microsoft’s business segments are performing well at scale. However, due to investor sentiment and a near-exclusive focus on capex intensity, they believe the stock may remain range-bound until the market is assured that Azure and Commercial Cloud growth can consistently exceed capex increases, as it did from fiscal year 2017 to fiscal year 2023 before the current genAI capex ramp began.

In conclusion, Stifel analysts expect Microsoft to continue realizing double-digit revenue and profitability growth for the foreseeable future, driven by the rapidly emerging genAI cycle. With analyst targets ranging from $420 to $650, and Microsoft’s strong financial health score of 2.92 (GOOD) on InvestingPro, the company remains well-positioned despite the adjusted price target of $475. For deeper insights into Microsoft’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers, along with 15+ additional ProTips and extensive financial metrics.

In other recent news, OpenAI has started rolling out its GPT-4.5 to plus tier subscribers, as confirmed by CEO Sam Altman. The rollout is expected to be completed in the next few days, allowing users to experience the new technology with extended real-time interactions. Meanwhile, OpenAI has hinted at a significant announcement related to Artificial General Intelligence (AGI) expected this year, marking a transformative step in AI development. Microsoft, on the other hand, has announced an investment of approximately $300 million in AI infrastructure in South Africa, which underscores its commitment to technological advancement in the region.

In a separate development, Microsoft has issued a warning about a Chinese espionage group, Silk Typhoon, which has been targeting cloud technology and IT supply chains. The company has taken steps to notify affected customers and provide guidance to secure their environments. Additionally, the United Kingdom (TADAWUL:4280)’s Competition and Markets Authority (CMA) has concluded that the partnership between Microsoft and OpenAI does not warrant an investigation, as it does not constitute a relevant merger situation. These recent developments highlight the ongoing strategic moves and challenges faced by both OpenAI and Microsoft in the rapidly evolving tech landscape.

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