Alexander Shapovalov/iStock Editorial via Getty Images
BofA raised the price target on Microsoft’s (NASDAQ:MSFT) stock to $585 from $515 ahead of the company’s fiscal year 2025 fourth-quarter results on July 30.
The firm has reiterated its Buy rating and its Top Pick tag on Microsoft.
Analysts led by Brad Sills said they concluded a round of Microsoft partner checks and commentary suggests largely in line fiscal fourth quarter deal activity, consistent with the fiscal third quarter.
As such, the analysts expect 0-1% upside to their fourth quarter revenue estimate. As per partners, Azure strength was driven by steady cloud migrations and strength in security and data analytics. The analysts see potential for Azure growth of 35.5% year-over-year (constant currency, or cc) (18% points from AI), versus their base for 34.2% (and 17%).
The analysts see potential commercial Office upside from E3/E5 and Copilot. The analysts said that for Productivity and Business Processes, or PBP, they see potential for 13% cc growth versus their base case of 12.5%, driven by upside from commercial Office growth of 15%, versus guidance for 14%.
Partner feedback suggests stable E3/E5 upgrade activity and ramping Copilot adoption. For Mobile Personal Computing, or MPC, the analysts see potential for 3.4% cc growth, versus BofA’s 2.4%, as IDC reported better-than expected preliminary second quarter PC shipment growth of 7% year-over-year versus 4% expected for 2025, according to the analysts.
Sills and his team said they expect fiscal 2026 revenue growth to hold with fiscal 2025. For fiscal 2026, the analysts have modeled revenue growth of 14%, holding with fiscal 2025 growth, as Azure becomes a greater mix of revenue, growing over 30%.
In addition, the analysts noted that evidence of a ramping Copilot cycle would be the next catalyst. The analysts added that the stock has risen nearly 30% since the fiscal third quarter and trades at a premium versus peers. However, with Azure growing mid-30s in a still tough macro, capital expenditure flattening as a percentage of revenue and margin expansion, they see sentiment and the multiple holding.
The next catalyst is likely more evidence that Copilot is becoming more material to growth. While an inflection quarter is unlikely, the analysts believe Copilot has potential to drive incremental growth as we move through fiscal 2026, the analysts noted.