Microsoft soars after ‘AI-supported growth’ in Q4; gets upgrade at KeyBanc

Shares of Microsoft (NASDAQ:MSFT) soared about 9% premarket on Thursday after fiscal fourth quarter results beat estimates which drew praise from Wall Street analysts.

Goldman Sachs reiterated its Buy rating and raised its price target on Microsoft’s stock to $630 from $550 following fiscal fourth quarter 2025 “outperformance across all key metrics.”

“We leave with increasing confidence in the longevity of AI-supported growth supporting share capture across Microsoft’s businesses. This quarter helped validate our thesis that AI percolates up the stack, the ripple effect of Microsoft’s GPU compute leadership drives demand for their wider suite of higher-margin products which, uniquely, cover all layers of the tech stack,” said analysts led by Kash Rangan.

The analysts believe that in an agentic world, as AI workloads rapidly scale, Microsoft will see benefits across its business, with demand for more storage, more databases, and more application usage (as well as upside from OpenAI revenue sharing).

“As higher margin inferencing workloads scale and Microsoft continues to cross sell customers onto its wider suite of high-margin platforms and applications, we look to the previous cloud cycle as precedent. Ultimately, Microsoft’s higher-margin platform services helped reaccelerate GM [gross margin] and earnings growth,” said Rangan and his team.

KeyBanc Capital upgraded Microsoft to Overweight from Sector Weight with a $630 price target.

Analysts led by Jackson Ader said the reasons for their April downgrade were due to worries that capex and depreciation expense would hamper gross margins and again inflame the debate on AI return-on-investment, along with a skepticism that the company would have the willingness or ability to continue to cut headcount enough to defend its margins. In addition, there were macro concerns picked up in their survey work during the spring that they felt would impact Microsoft more than the rest of the sector.

However, the analysts noted that Azure growth accelerated eight full percentage points in constant currency over the second half, from 31% in January to 35% in March to 39% exiting the year. The last two quarters have rendered the debates all but irrelevant for the time being.

The Azure segment produced around $500M and $700M of upside to guidance in the last two quarters, respectively, the “equivalent of finding a Monday.com in your couch cushions,” the analysts added. “Upside like this is why we do not expect the costs of supporting the Azure business to be debated much for the remainder of the year,” the analysts noted.

Ader and his team said that there was no material mention of macro headwinds on the call and, “since the time of our fears over needing to cut operating expenses in order to defend margins, Microsoft has laid off over 10,000 employees.”

“We said last quarter we may not have the stomach for many more quarters of major upside while Sector Weight, now we don’t have the stomach or the thesis for it,” said the analysts.