Stock market today: S&P 500 drops for fifth day as focus shifts to Powell’s speech
On Thursday, Wolfe Research analyst Alex Zukin adjusted the price target for Microsoft stock (NASDAQ:MSFT) to $475 from the previous $515 while maintaining an Outperform rating. With a market capitalization of $3.29 trillion and trading near its 52-week high, Microsoft currently trades at a P/E ratio of 36.48. According to InvestingPro analysis, the stock appears to be fairly valued based on its proprietary Fair Value model. Zukin’s analysis indicated that Microsoft’s Azure cloud service, particularly its non-AI segment, grew less than anticipated, falling below the 20% mark without clear indications of reaching a low point. The strong demand for Azure’s AI capabilities, despite being limited by current capacity constraints, showed a year-over-year growth of 157%, contributing significantly to the overall growth.
Zukin pointed out that while Microsoft’s recent bookings were the strongest they’ve seen in decades, bolstered by a new Azure commitment with OpenAI, the full benefits of AI demand on Azure’s growth will likely not be realized until the fiscal year 2026. This delay is attributed to ongoing go-to-market strategy changes and capacity limitations, which are not expected to be fully resolved until the end of the fourth quarter.
Despite the slower-than-expected growth in Azure’s core services, Microsoft has demonstrated resilience in its operating leverage, with the company now expecting operating margin expansion for the fiscal year 2025. This comes even as the company faces continued gross margin headwinds. InvestingPro data shows Microsoft maintains a robust gross profit margin of 69.4% and has achieved revenue growth of 15.04% over the last twelve months, demonstrating strong financial health with an overall score of "GREAT."
The analyst also highlighted Microsoft’s AI business outside of Azure AI, which has crossed a $13 billion run-rate, growing by 175%. This includes Microsoft 365 Copilot, which has exceeded internal expectations. Zukin remains optimistic about the long-term benefits of AI, anticipating that it will lead to an acceleration of growth and a resurgence in earnings per share growth in fiscal years 2026 and 2027.
In conclusion, Zukin reaffirmed the Outperform rating for Microsoft stock but noted that shares are likely to be range-bound until there are improvements in execution or capacity. The revised price target reflects the current challenges and the anticipated timeline for realizing the full potential of Azure’s AI offerings. InvestingPro subscribers have access to 16 additional ProTips and a comprehensive Pro Research Report that provides deep-dive analysis of Microsoft’s valuation, growth prospects, and financial health metrics.
In other recent news, Microsoft Corporation reported a 12% increase in second-quarter revenue, reaching $69.6 billion. Despite positive earnings, Microsoft’s Azure cloud service growth was at the lower end of projections, with third-quarter guidance also falling below consensus. Microsoft’s CFO, Amy Hood, announced that capital expenditure levels will remain consistent for the next two quarters. The company continues to heavily invest in artificial intelligence, despite concerns about an imbalance between capital allocation and actual usage of the technology.
KeyBanc Capital Markets reaffirmed its Overweight rating on Microsoft, maintaining a steady price target of $575.00. The firm cited Microsoft’s strategic response to challenges posed by the DeepSeek development as a key factor in maintaining the rating. Meanwhile, Guggenheim reiterated a Neutral rating on Microsoft following the release of its second-quarter financial results. Bernstein SocGen Group adjusted its price target on Microsoft shares, reducing it slightly from $516.00 to $511.00, but reiterated its Outperform rating on the stock.
Several analyst firms adjusted their price targets for Microsoft. Bernstein reduced its target from $516 to $511, while Mizuho (NYSE:MFG) Securities lowered its target from $510 to $500. Goldman Sachs maintained a Buy rating and reiterated its $500 target. These adjustments were made in response to recent developments, including Microsoft’s significant expenditures on artificial intelligence development. These are recent developments in the technology sector.
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