KeyBanc Upgrades Microsoft to Overweight, $630 Price Target

KeyBanc analyst Jackson Ader upgraded Microsoft (NASDAQ: MSFT) from Sector Weight to Overweight with a price target of $630.

“The reasons for our April downgrade were centered around worries that capex and depreciation expense would hamper gross margins and again inflame the debate on AI return-on-investment, coupled with a skepticism that the Company would have the willingness or ability to continue to cut headcount enough to defend its margins.

Plus there were macro concerns picked up in our survey work during the spring that we felt would impact Microsoft more than the rest of the sector.

Azure growth accelerated eight full percentage points in constant currency over the second half, from 31% in January to 35% in March to 39% exiting the year.

The last two quarters have rendered the debates all but irrelevant for the time being.

The Azure segment produced roughly $500M and $700M of upside to guidance in the last two quarters, respectively, the equivalent of finding a Monday.com in your couch cushions.

Upside like this is why we do not expect the costs of supporting the Azure business to be debated much for the remainder of the year.

Further, there was no material mention of macro headwinds on the call and, since the time of our fears over needing to cut operating expenses in order to defend margins, Microsoft has laid off over 10,000 employees.”

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