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Investing.com - Wells Fargo (NYSE:WFC) raised its price target on Microsoft (NASDAQ:MSFT) to $600 from $585 on Tuesday, while maintaining an Overweight rating on the stock. The tech giant, currently trading at $503.02 and near its 52-week high of $506.78, has demonstrated robust financial health, earning a "GREAT" rating according to InvestingPro metrics.
The firm cited robust Azure cloud growth, which remains capacity constrained, and expects potential upside to the 34-35% guidance for the fiscal fourth quarter. Wells Fargo anticipates Microsoft will maintain similar mid-30s constant currency growth guidance for the first fiscal quarter, aligned with the company’s commentary on easing supply constraints "beyond June." This growth trajectory aligns with Microsoft’s impressive 14.13% revenue growth over the last twelve months.
Microsoft’s Microsoft 365 Copilot adoption is building momentum, with customers particularly drawn to Copilot Studio. This trend is expected to extend the durability of the Microsoft 365 Commercial Cloud franchise, prompting Wells Fargo to raise its fiscal year 2026 growth estimate to 13% year-over-year in constant currency, 2 percentage points ahead of Street estimates.
The firm expects significant AI-related capital expenditures to continue, estimating approximately $100 billion for fiscal year 2026, roughly in line with Street expectations of $99 billion. However, growing depreciation and amortization expenses in fiscal year 2026 could pose an estimated 200 basis point headwind to operating margins.
Recent layoffs at Microsoft, reportedly totaling around 15,000 positions, could result in $3-4 billion in cost savings, or approximately 2% of Microsoft’s $150 billion cost base, according to Wells Fargo’s estimates. The firm adjusted its fiscal year 2026 estimates to reflect these cost actions, now projecting operating income and earnings per share growth of 13% year-over-year. With a P/E ratio of 38.68, Microsoft trades at premium multiples, reflecting high growth expectations. For deeper insights into Microsoft’s valuation and 18 additional exclusive ProTips, visit InvestingPro, where you’ll find comprehensive research reports and expert analysis.
In other recent news, Cognition has acquired AI coding startup Windsurf after a previous $3 billion acquisition deal with OpenAI fell through. This acquisition includes Windsurf’s intellectual property and business operations, with all employees participating financially in the transaction. Additionally, Windsurf’s key executives, including CEO Varun Mohan, have joined Google (NASDAQ:GOOGL)’s DeepMind division in a separate $2.4 billion deal. Meanwhile, Microsoft has seen several analyst firms adjust their price targets for the company. BMO Capital raised its price target to $550, maintaining an Outperform rating, citing stable Azure service consumption and positive feedback from cloud experts. Piper Sandler also increased its price target to $600, highlighting Microsoft’s gains in the Infrastructure as a Service market. Morgan Stanley (NYSE:MS) reiterated its Overweight rating with a $530 price target, emphasizing Microsoft’s strong position in the AI market. Microsoft is set to release its fiscal year 2025 fourth-quarter financial results on July 30.
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