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Investing.com - Guggenheim maintained its Buy rating on Microsoft (NASDAQ:MSFT) with a price target of $586.00, despite some concerns about Azure cloud capacity constraints. This target represents potential upside from Microsoft’s current price of $541.55, though InvestingPro data suggests the tech giant is trading above its Fair Value, with a P/E ratio of 39.52.
The firm had upgraded Microsoft ahead of earnings based on Azure’s significant traction over the prior two quarters, anticipated Microsoft 365 Commercial Copilot adoption, and strong Windows performance supporting the bottom line.
Guggenheim noted that while these drivers remain intact, Azure traction fell short of expectations, which was reflected in Microsoft’s fiscal second-quarter guidance and subsequent stock price reaction.
The research firm highlighted that Microsoft cited capacity constraints for the rest of the year as limiting Azure growth, with management guiding to 37% constant currency growth based on available capacity rather than demand limitations.
Guggenheim expressed some uncertainty about Microsoft’s ability to achieve comfortable profitability in AI training workloads compared to competitors like Oracle (NYSE:ORCL), but expects Microsoft will "figure out how to satisfy that demand, including an incremental $250B from OpenAI, lest someone else does." Despite these challenges, Microsoft continues to deliver strong revenue growth of 14.93% over the last twelve months, with some analysts setting targets as high as $710. Discover more insights in Microsoft’s comprehensive InvestingPro Research Report, available with a subscription.
In other recent news, Microsoft reported a strong quarter with Azure cloud services achieving a 39% growth rate, despite some analysts expressing concerns over capacity issues. Evercore ISI raised its price target for Microsoft to $640, citing the impressive demand for Azure and cloud services. Wells Fargo also increased its price target to $700, highlighting the robust performance of Azure, which exceeded expectations with its constant currency growth. On the other hand, Stifel lowered its price target to $640, noting that Azure’s growth was at the low end of investor expectations. Raymond James further reduced their target to $600, mentioning increased capital expenditure needs due to ongoing capacity demands. Despite these mixed signals, Truist Securities maintained a Buy rating with a $675 price target, praising Microsoft’s overall performance and significant growth in commercial bookings. These developments underscore the varied analyst perspectives on Microsoft’s future prospects, particularly concerning its cloud services.
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