Microsoft Trades At Discount To Oracle Despite Strong Cloud Position: Analyst

Goldman Sachs analyst Kash Rangan reiterated a Buy rating on Microsoft Corp MSFT with a price target of $500.

Rangan left his estimates for $88 billion and $91 billion in fiscal 2025 and 2026 capital expenditure unchanged following the recent report that Microsoft has potentially delayed or canceled some of its AI data center leases.

While unconfirmed, Rangan noted this reporting emphasizes what the company has already telegraphed: that as a responsible capital allocator, Microsoft continues to invest in AI capacity prudently with an eye toward returns.

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The reported tactical adjustments to infrastructure imply the potential to participate in individual investments only at the right cost curve.

As Microsoft begins to shift capital expenditure investments towards shorter-lived assets, the analyst noted bias to the upside for fiscal 2026 capital expenditures as longer-lived components come online, and Microsoft dynamically adjusts investments with near-term demand. Furthermore, the shift from first to third-party assets could reflect a pivot to a more inference-oriented capacity, which would be positive for long-term earnings.

Rangan noted that as generative AI moves from the Infrastructure layer to the Platform and Application layers, Microsoft is well-positioned to capitalize on this shift as the only hyperscaler with a broad base of business applications.

The analyst stated EPS growth is poised to reaccelerate as capital expenditure growth moderates and Microsoft benefits from the higher-margin inference/application phase of generative AI.

At 30 times calendar 2025 EV/FCF, Microsoft is trading at a discernible discount to Oracle Corp ORCL (49 times), which has a $97 billion book of business and an increasing capital expenditure profile.

The analyst continues to favor Microsoft at these levels, given ~$300 billion in RPO, AI revenue scaling to a $13 billion run rate (+175%), commercial bookings at +75%, EPS growth, and an established AI position.

Microsoft is among the most compelling investment opportunities in the technology industry and across sectors. With a strong presence across all layers of the cloud stack, including applications, platforms, and infrastructure, Microsoft is well-positioned to capitalize on generative AI, public cloud consumption, SaaS adoption, digital transformation, AI/ML, BI/analytics, and DevOps.

Along with continued operating leverage, as its cloud business reaches a ~$100 billion run-rate, this should drive sustainable EPS growth, leading to a near doubling of earnings per share from fiscal 2024 to fiscal 2028. Price Action: MSFT stock closed down by 1.51% to $397.90 on Tuesday.

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