On Thursday, TD Cowen maintained a positive stance on Microsoft Corporation (NASDAQ:MSFT) shares, raising the price target to $495 from $470, while keeping a Buy rating on the stock. The firm's analysis points to a consistent performance in Microsoft's Office 365 Commercial segment, projecting a 14% constant currency (cc) growth.
Although the previous quarter saw a 15% cc growth, the firm anticipates an in-line quarter for Microsoft, with vendor consolidation and Average Revenue Per User (ARPU) growth through upgrades serving as beneficial factors.
The commentary from TD Cowen suggests that despite a slowing in seat growth and mixed feedback regarding the adoption of Copilot, Microsoft is expected to maintain a 1% growth influence from Copilot in its Fiscal Year 2025 Office estimates.
Additionally, the firm's checks indicate a stabilization in PC demand, forecasting an in-line or possibly better-than-expected quarter with a 4% cc growth estimate. This is in the context of Intel (NASDAQ:INTC)'s expectation of approximately 3% PC growth in Calendar Year 2024, including over 40 million AI PCs.
The release of AI-enabled PCs and tablets by Microsoft in mid-June is anticipated to provide a minor boost in the current quarter and a more significant impact in the second half of Calendar Year 2024. Notably, AI PCs are expected to carry a 5-10% Average Selling Price (ASP) premium.
TD Cowen projects Microsoft's revenue growth at 16% cc, slightly above the Street's consensus of 15%, and an operating margin of 42.7%, aligned with the Street's expectations.
The firm foresees continued momentum in Microsoft's performance, driven by robust demand for Azure AI and core services, alongside easier comparisons and a conservative margin guide.
With shares trading at approximately 32 times the Calendar Year 2025 estimated Price to Earnings (P/E) ratio, TD Cowen posits that there is potential for upward revisions in financial estimates to further propel the stock's value, justifying the new price target of $495, which reflects around 35 times the Calendar Year 2025 estimated P/E.
In other recent news, Microsoft Corporation has been the focus of several key developments. BofA Securities recently revised its shares target for the tech giant to $510, maintaining a Buy rating.
This adjustment reflects anticipated growth in Microsoft's Office business, particularly due to the introduction of Copilot. Analysts predict a potential 20% growth in the Office segment by the first quarter of 2026 if trends continue favorably.
On the financial front, Microsoft's fiscal third-quarter earnings reported a total revenue of $61.9 billion, surpassing analysts' forecast of $60.8 billion. This led to Mizuho Securities and BMO Capital Markets raising their price targets for Microsoft, citing strong growth in the company's Azure cloud service and overall cloud business.
The UK's Competition and Markets Authority has initiated an investigation into Microsoft's hiring practices from AI startup Inflection AI. Meanwhile, GOP lawmakers have requested an intelligence briefing on Microsoft's $1.5 billion investment in UAE-based AI company G42, citing potential national security concerns. These developments underline the company's ongoing activities in the AI and cloud services sectors, as well as the regulatory and political challenges it faces.
InvestingPro Insights
In light of TD Cowen's optimistic outlook on Microsoft Corporation (NASDAQ:MSFT), real-time data from InvestingPro provides a deeper financial perspective on the tech giant. Microsoft's market capitalization stands impressively at $3.3 trillion, indicating its immense scale and influence within the industry. The company's P/E ratio, a measure of its current share price relative to its per-share earnings, is at 38.95, which is considered high, suggesting that investors are anticipating high future earnings growth. Additionally, its revenue for the last twelve months as of Q3 2024 has grown by nearly 14%, a testament to Microsoft's ability to expand its business and maintain a competitive edge.
InvestingPro Tips highlight Microsoft's consistency in rewarding shareholders, having raised its dividend for 18 consecutive years, a sign of financial health and a commitment to returning value. Moreover, the company's low price volatility indicates stability, which could be attractive to risk-averse investors. For those seeking more in-depth analysis, InvestingPro offers additional tips on Microsoft. To explore these insights and further enrich your investment strategy, consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
Overall, the combination of strong fundamentals and strategic initiatives, such as the anticipated release of AI-enabled PCs and tablets, positions Microsoft favorably in the eyes of both analysts and investors, aligning with TD Cowen's raised price target and bullish stance.
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