Microsoft (MSFT) PT Raised to $640 at Evercore ISI

Evercore ISI analyst Kirk Materne raised the price target on Microsoft (NASDAQ: MSFT) to $640.00 (from $625.00) while maintaining a Outperform rating.

The analyst comments "Bottom line: While shares might be down a bit in the aftermarket, in our view the bottom line is that MSFT delivered a very impressive quarter and demand for Azure and Microsoft’s cloud services is strong. The OAI relationship is locked down for the foreseeable future, demand for Azure is accelerating – leading to higher capex – and commercial bookings were up a whopping 111%, providing enhanced visibility into future Azure growth. While we expect shares are down due to ‘whisper expectations’ for Azure growth being closer to ~40%, we believe delivering 39% growth in a capacity-constrained environment is impressive and the F2Q guide of 37% indicates that high-30% growth is likely sustainable as capacity comes online – even against tougher compares. As such, we view any pullback based on F1Q results as a buying opportunity for long-term investors. We reiterate our Outperform rating and bump our PT to $640 or ~31x CY27 EPS. A few thoughts coming away from the quarter: 1) Azure delivering 39% growth and a F2Q guide of 37% are unbelievably impressive, especially considering demand is running ahead of capacity; 2) The OpenAI announcement takes a lot of ‘what if’s’ off the table in our view and offers MSFT shareholders increased optionality in terms of the API revenue and OAI equity stake; 3) While it’s lost in the Azure headlines, PBP revenue remains solid at 14% growth in c/c as E5 and Copilot continue to drive ARPU growth; 4) The total F2Q revenue guide ($80.0bn vs. Street at $80.1bn) was a bit below expectations, but this was largely due to MPC, not the core enterprise businesses (i.e. PBC/IC). We think any negative optics around total revenue guide are not thesis changing; 5) Capex jumped materially higher to $34.9bn from $24.2bn – and from an Azure perspective, this is a good thing. MSFT isn’t throwing good money after bad, so if capex is going up, it’s because demand is accelerating; and 6) Commercial bookings increased 111% and commercial RPO grew 51% to $392bn. This excludes the impact from the incremental Azure commitment with OpenAI announced this week."

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