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The analysts lifted their price target on the stock to $400 from $350, joining a dozen or so other analysts with price targets of $400 or more. The new target from Goldman suggests a 15.3% upside from current levels.
“As Microsoft 365 Copilot will be launched into a base of +380mn users for $30/user/month, we size the TAM at +$135bn long-term,” they commented. “We estimate Microsoft can recognize 15-30% of this opportunity by FY26, with the assumption of a mid- to late FY24 launch. We see accelerated adoption vs. the migration cycles of E3/E5 given the ubiquitous productivity expected.”
The news reinforces the firm’s strong belief that the Microsoft Cloud, which primarily includes Azure and Office, is poised for sustained growth of over 20% in the forthcoming years. As businesses increasingly embrace Gen-AI services, the potential for expansion in this domain becomes even more promising, the analysts added.
Azure’s sequential deceleration is expected to stabilize as optimization trends plateau and Gen-AI workloads are integrated. In 4Q23, Azure growth is projected at 27% in constant currency, leading to a total revenue/EPS growth of 8% (vs consensus’ 7%) and 18% (vs. Street’s 14%) respectively. Azure may exceed expectations by ~100bps due to strong demand for new offerings like Azure OpenAI Services and GitHub Copilot, as indicated by channel conversations.
Meanwhile, investors worry about capex intensity exceeding $45 billion next year, but they anticipate a more probable range of $30-35B. Approximately $2-5B will be allocated to support Gen-AI services. Despite these investments, investors might overlook them due to the significant revenue potential they offer, the analysts commented.
