Microsoft in focus as Morgan Stanley, Goldman Sachs weigh in ahead of earnings

Microsoft (NASDAQ:MSFT) was in focus on Thursday as Morgan Stanley and Goldman Sachs weighed in on the tech giant ahead of its quarterly earnings, slated to be released in short order.

Morgan Stanley analyst Keith Weiss, who has an Overweight rating and $506 price target on the tech giant, said a recent CIO survey showed “stable” software growth expectations for 2024 and a “moderate” acceleration in growth expected for 2025 software budgets, with artificial intelligence and machine learning at the top of CIO’s minds.

“Importantly, hyperscalers remain the favored vendor group for CIOs in assisting to apply AI, LLM’s, and other innovative technologies,” Weiss wrote in a note.

“And critically, Microsoft is in the leadership position, driven in part by: strong alignment to key secular themes and CIO priorities; vast scope of products to monetize Generative AI across its broad portfolio and installed base; ability to leverage consumption pricing (via its Azure Cloud business) enabling investors to see pick-up in demand translate to revenue earlier – this translates to Microsoft expanding its leadership position as the #1 share gainer of IT wallet on a 1- year and 3-year view as workloads shift to the cloud and its leadership position allows it to capture the largest incremental share of GenAI spend by a wide margin.”

Goldman Sachs analyst Kash Rangan noted that the coming quarterly results — especially free cash flow — could be impacted by a step-up in AI capex spending.

“We note in prior periods of accelerated CapEx and GM pressure, the stock underperformed in the [short-term], while ultimately outperforming with Azure re-acceleration; we could now be at a similar juncture,” Rangan wrote.

“However, to better reflect our expectations for the CapEx build out to mirror that of Azure, we raise our CapEx estimates (with the initial step-up expanded in each subsequent year). Though we are modeling $2-3bn in OpenAI losses for FY25/FY26, we see room for tailwinds to EPS from operating efficiencies as Microsoft’s strategic investments scale.”

Rangan reiterated his Buy rating but lowered his price target to $500 from $515.

A consensus of analysts expect Microsoft to earn $3.10 per share on $64.52B for the coming quarter.