Analysts at Citi raised their target for Microsoft (NASDAQ:MSFT) to $520 from $495 in a note this week, maintaining a Buy rating on the stock.
The bank said the latest OpenAI headlines are a positive read on Microsoft's Azure, but the expenses may be too low.
Over the last few weeks, OpenAI has been in the news, with press reports of the company more than doubling annualized revenue to $3.4 billion in ARR and expanding cloud capacity contracts with ORCL.
"While OpenAI headlines are a positive from a growth perspective (suggest strength in Azure), we conclude consensus models may be understating the losses that MSFT will incur from their OpenAI stake in the non-operating expense line," wrote analysts at Citi.
They explain that while it is not significant, given the large scale of MSFT's business, they believe consensus EPS estimates may be overstated by $0.04-$0.05 in the coming quarters all-else-equal.
Overall Citi slightly reduced its near-term EPS estimate by roughly 1% for F4Q24 and F1Q25 EPS of $3.08 where they are ~2% below consensus of ~$3.15. They raised their FY27+ estimates.