Evercore ISI Raises Microsoft Price Target to $500

Evercore ISI analyst Kirk Materne raised the price target on Microsoft (NASDAQ: MSFT) to $500 (from $435) while maintaining an Outperform rating.

“Bottom line: After a few quarters of MSFT shares twisting in the wind, we believe the stellar F3Q results, highlighted by a strong ‘beat/raise’ in Azure and a call for flattening capex growth in FY26 should help flip sentiment in a more positive direction.

Clearly, the macro environment remains a wild card, but with Azure back in ‘beat/raise’ mode, we believe that overhang now turns into a tailwind and highlights not only the significant demand for AI services on Azure, but also MSFT’s broad base of infrastructure offerings to support the ongoing migration of enterprise workloads to the cloud.

In our view, the F4Q Azure guide of 34-35% hints at a more stable backdrop for non-AI Azure growth vs. what we (or the Street) were expecting given the current macro backdrop which, in turn, supports a more optimistic outlook for aggregate revenue growth when peeking ahead to FY26.

While no company, including MSFT, is recession proof, we believe the quarter was a reminder that MSFT remains an ‘all weather’ stock and its commercial business should continue to see strong growth based on tailwinds from AI and cloud migrations, even in a more difficult macro environment.

Reiterate Outperform and raise PT to $500 (~32x CY26 EPS).

In terms of key takeaways, we would highlight the following: 1) Azure grew by 35% in c/c, with AI contributing 16pts of growth, up from 31% and 13pts in the prior quarter.

Mgmt. noted that some AI capacity had landed sooner than expected and now anticipates some supply chain constraints going into next quarter; 2) Mgmt. saw an acceleration in the enterprise segment of non-AI Azure revenue but believes there is still work to be done in the scale motion; 3) Commercial bookings were up 17% in c/c driven by an Azure commitment from OpenAI as well as consistent execution, and mgmt. expects F4Q to be another strong bookings quarter.

Commercial RPO landed at $315bn, up 33% in c/c; 4) Capex landed at $21.4bn, down from $22.6bn in the prior quarter, demonstrating that growth has started to normalize.

Mgmt. guided to a sequential increase in capex for F4Q; 5) Our estimates move higher despite a higher loss on the OI line due to the OIA investment; 6) Copilot continues to show solid growth and remains the #2 contributor to ARPC growth in M365 Commercial after the E5 motion; and 7) Mgmt. continues to guide to y/y operating margin expansion in FY25.”

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