Microsoft Azure's Soaring Growth and AI Innovations Signal a Bright Future for Investors: Analysts

Piper Sandler analyst Brent A. Bracelin maintained an Overweight rating on Microsoft Corp MSFT with a price target of $455.

The analyst noted factors that could shift investor optimism to the flagship Microsoft Cloud segments in 2024. 

Azure growth could accelerate slightly to 29%-30% year-on-year with a clear revenue path to $95 billion within two years.

ARPU expansion at O365 could sustain 15%-18% growth for a product with $50 billion+ revenue potential by fiscal 2025, Bracelin flagged. 

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Looking out three years, the analyst noted Microsoft Cloud revenue topping $200 billion+ at a 22%+ CAGR (vs. $51 billion+ in fiscal 2020). Easy non-cloud compares (46% of sales) could further accentuate robust cloud fundamentals for the next couple of quarters, Bracelin highlighted. The analyst is excited about the promise of Microsoft’s AI first-mover advantage but acknowledges this is still small at 1% of revenue and notes the cloud as the underlying demand engine turbocharging growth. Microsoft will report its quarterly results on January 30.

The analyst projected second-quarter revenue and EPS of $61.16 billion and $2.75.

Oppenheimer analyst Timothy Horan had an Outperform rating on Microsoft with a price target of $410.

The analyst noted that this quarter is pivotal for Microsoft and the technology sector because it provides an early look into its inroads as the full-stack, one-stop shop for AI and progress monetizing Generative AI. 

Horan noted that Copilot delivers measurable customer gains, resulting in strong demand, justifying premium pricing. 

Beyond productivity enhancements, investors will focus on progress in customer adoption, ARPU growth, profitability, and new Copilot applications, he said. 

Microsoft has converted its early lead in this new AI wave into a rarified $3 trillion market cap. 

It must continue delivering innovative new products like CoPilot, Arc, Maia, Phi-2, OneLake, and Fabric, translating GAI’s promise into fact, Horan said.

The analyst projected second-quarter revenue and EPS of $60.92 billion and $2.74.

Price Action: MSFT shares closed higher by 0.57% at $404.87 on Thursday. 

Photo by Rainer Stropek via Flickr