Goldman Trims Microsoft Price Target, Sticks With Bullish Gen-AI Growth Thesis

Microsoft Corp. MSFT just took a $50 price target cut from Goldman Sachs, but analysts still have faith in the tech giant’s efforts to monetize artificial intelligence.

What Happened: The Redmond, Washington-based company still ranks among the most compelling in the software industry despite potential near-term headwinds, analysts say.

In a note shared Thursday, Goldman Sachs’ Kash Rangan reiterated a Buy rating on Microsoft while lowering the 12-month price target from $500 to $450. This reflects an adjustment of valuation multiples amid macroeconomic uncertainty.

At Wednesday’s closing price of $374.39, Goldman's new $450 price target implies a 20.2% upside.

Goldman sees divergent outcomes across Microsoft’s business lines as customers grapple with volatile economic conditions. A key area of focus is Azure, the company’s cloud computing platform and a cornerstone of its AI strategy.

For the fiscal third quarter of 2025, Goldman expects Azure growth of 31% in constant currency, slightly above the FactSet consensus of 30%, and an overall revenue figure of $68.6 billion, up 11% year over year, in line with consensus.

Earnings per share are projected at $3.23, marginally higher than Wall Street's estimate of $3.21.

Yet Goldman is cautious about Microsoft’s fiscal year 2026 (FY26) outlook. While it currently projects 35% growth in non-AI revenue for Azure in FY26, up from 10% in FY25, Rangan acknowledged "some downside risk" if non-AI growth levels off.

Despite some moderation in non-AI workloads, the analyst still sees traction in generative AI demand. As new capacity ramps up, usage shifts toward applications.

See Also: Geoffrey Hinton, Ex-OpenAI Insiders, And Top AI Experts Sound Alarm On OpenAI’s Restructuring

Capital Expenditures And Guidance Ambiguity

Investors are also looking for guidance clarity on FY26 CapEx, especially after reports of leasing adjustments and cancellations.

Goldman maintains its forecast of 20% growth in capital expenditures, drawing confidence from Microsoft's historical willingness to invest through downturns.

Yet, the firm anticipates that Microsoft may delay formal spending guidance until its fourth-quarter earnings report, pending more clarity on U.S. trade policy and tariffs.

Generative AI Momentum Keeps Bulls Engaged

Even with the lower price target, Goldman views Microsoft as a long-term winner in the AI race.

Analysts highlight the company's positioning across all cloud layers—infrastructure, platforms, and applications—and its unique advantage in monetizing generative AI through services like GitHub Copilot, Microsoft 365 Copilot, and Azure OpenAI Services.

“We continue to believe that as Gen-AI moves from the Infrastructure layer to the Platform/Application layers, Microsoft is well positioned to capitalize on this shift as the only hyperscaler with a broad base of business applications,” the report said.

Goldman forecasts FY25 revenue of $277.1 billion, up 12% year over year, and EPS of $13.15, closely aligned with consensus estimates.

What’s Next: The tech giant is set to report its fiscal third-quarter 2025 earnings on Wednesday, April 30.

Looking into fiscal 2026, Goldman sees earnings growth accelerating from +11% to +17% in 2025, helped by the transition from heavy AI infrastructure spending to higher-margin AI inference.

"Microsoft benefits from the higher margin inference phase of AI and the company comes out of a period of extreme capital intensity," the note said, suggesting a more profitable cycle ahead.

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