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Tuesday, Jefferies reaffirmed its Buy rating on Microsoft Corporation (NASDAQ:MSFT) with a price target of $550.00. The firm's perspective is that Microsoft's first fiscal quarter expectations of a 15% year-over-year constant currency growth are attainable, despite being slightly lower than the fourth fiscal quarter's 16% growth.
This outlook comes in light of Microsoft's performance remaining unchanged since the fourth fiscal quarter earnings release, compared to a 10% increase in the iShares Expanded Tech-Software Sector ETF (IGV), an index in which Microsoft is a component.
The analyst from Jefferies pointed out that the market's attention continues to be on the growth of Azure, Microsoft's cloud computing service, which is expected to grow around 33% year-over-year on a constant currency basis. Additionally, there is anticipation for Azure's guided reacceleration in the second half of the fiscal year and the company's capital expenditure trajectory for fiscal year 2025, which is projected to be around $80 billion.
Despite the current quarter typically being Microsoft's seasonally weakest, the analyst expressed confidence in the company's ability to perform well. The firm's stance is bolstered by Microsoft's long-term consolidation and the narrative surrounding artificial intelligence, which is seen as a significant factor in the company's future growth.
The price target of $550.00 is based on approximately 36 times the consensus earnings per share for Microsoft's fiscal year 2026. Jefferies' reaffirmation of the Buy rating indicates a positive outlook on Microsoft's stock, aligning with the expectation of continued strong performance and growth, especially in its Azure cloud services and AI initiatives.
In other recent news, Alphabet (NASDAQ:GOOGL) Inc., the parent company of Google, is expected to report slow revenue growth. Similarly, Microsoft Corp . is poised to report its slowest quarterly revenue growth in five quarters, raising concerns over the demand for its artificial intelligence (AI) offerings. Ford Motor Company (NYSE:F) anticipates its full-year profit to be at the lower end of its forecast, resulting in a 6% drop in shares.
Meanwhile, Meta Platforms Inc (NASDAQ:META). is developing its own AI-based search engine, a strategic move away from reliance on Google and Bing. VF Corp (NYSE:VFC), the parent company of Vans, reported a profit for the first time in two quarters, leading to a 22% leap in shares.
InvestingPro Insights
Microsoft's robust financial position and growth prospects align well with Jefferies' bullish outlook. According to InvestingPro data, Microsoft boasts a substantial market capitalization of $3.21 trillion, reflecting its dominant position in the tech industry. The company's revenue growth of 15.67% over the last twelve months supports Jefferies' expectation of 15% year-over-year constant currency growth in the first fiscal quarter.
InvestingPro Tips highlight Microsoft's strong dividend history, having raised its dividend for 19 consecutive years and maintained payments for 22 years. This demonstrates the company's financial stability and commitment to shareholder returns. Additionally, Microsoft is noted as a prominent player in the Software industry, which aligns with its leading position in cloud computing and AI initiatives mentioned in the article.
While Microsoft trades at a high P/E ratio of 36.48, this valuation may be justified by its strong growth prospects, particularly in Azure and AI. The company's high return over the last decade, as noted in another InvestingPro Tip, further supports the long-term investment thesis.
For readers interested in a deeper analysis, InvestingPro offers 14 additional tips on Microsoft, providing a comprehensive view of the company's financial health and market position.
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