Microsoft Azure, Office 365, and Gaming To Drive Low Double Digit Growth: Analyst

Bank of America Securities analyst Bradley Sills reiterated a Buy rating on Microsoft Corp MSFT with a price target of $510.

Sills noted that Microsoft is well positioned to generate sustained low double-digit growth in the coming 3-5 years, led by continued adoption of the Azure cloud infrastructure platform, the cloud-based Office 365 productivity suite, and more profitable Games and Game Pass revenue in Xbox.

While a revenue mix shift toward lower-margin Azure and O365 segments is likely to offset scale benefits near-term, the analyst said operating expense scale will likely drive stable 50bps annual margin expansion over the coming years.

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Most Sills’ partners suggest solidly inline or better first-quarter fiscal 2025 results. As such, the analyst expects a 0%—1% upside to his first-quarter revenue estimate of $64.7 billion (+14% year-on-year, +11% year-on-year organic), driven by steady workload migration to Azure and upgrade momentum in the Office premium E3 and E5 cycle, somewhat offset by PC and Windows softness.

Sills’ commentary with partners suggests an inline migration of workloads to Azure, led by cloud migration and expanding AI. The analyst noted that security remained an area of strength.

He would look for upside Azure growth of 33%-34% year-on-year, under restated metrics (with 12% points from AI), versus his base of 33% (11%).

Sills’ estimate for M365 copilot revenue remains modest at $275 million. For More Personal Computing, he expects a largely inline result with his $12.5 billion estimate (+12% Y/Y).

The analyst flagged that the stock is +10.4% year-to-date, driven by enthusiasm for AI-led growth in Azure and Office. However, the shares have lagged recently due to concerns about ramping capex and limited visibility on the respective return on investment.

As per Sills, the stock is trading at 32 times the calendar year 2026 free cash flow, which is not stretched given the durability of low to mid-30s Azure growth, low mid-teens Office growth, and long-term scale on capex.

The analyst would look for multiple expansions as he approaches the expected second half of fiscal 2026 Azure reacceleration.

Sills projected first-quarter revenue of $64.42 billion.

The price target of $510 is based on an EV/FCF multiple of 40 times calendar year 2026 FCF or 1.9 times adjusted for low 20s growth, a premium to the software GARP group at 1.5 times for durability of growth.

Price Action: MSFT stock is down 0.01% at $416.05 at the last check on Thursday.

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