TD Cowen Reiterates Buy on Microsoft, $540 Price Target (April 29)

TD Cowen analyst Derrick Wood reiterated a Buy rating and $540.00 price target on Microsoft (NASDAQ: MSFT).

“Puts & Takes on MSFT/OpenAI Amended Agreement; Yesterday, OpenAI announced a new amended partnership with MSFT.

We think MSFT opted for a less risky route forward, w/ a more predictable & seamless outcome path for MSFT in the medium-term, but at the expense of LT upside capture.

But this restructuring seemed inevitable given growing complexity in vendor agendas. One clear benefit is a slight bump to Azure as MSFT’s OAI rev payments go away.

Key Takes: While MSFT is ceding its position as the primary inference provider to OAI models, we had thought this was likely given OAI’s more recent deal activity with GOOG, AMZN & ORCL, and we think the new agreement provides a more predictable & seamless outcome path for MSFT.

For OAI, they are no longer constrained by MSFT’s capacity or internal initiatives, and OAI now has more freedom to procure a more diverse set of infrastructure & product build strategies.

We estimate MSFT will benefit from 1) ~$700m/~ $1.3b/~$2.3b/~$3.7b/~$5.1b in FY26-FY30E reduced rev share payments to OAI (see pg.

3 for model highlights; assumes prior arrangement was 20% of Azure OpenAI Services paid to OAI; could result in a ~1-2% boost to total Azure growth in FY27E); 2) accelerated OAI share appreciation (MSFT is a 27% owner of OAI) by enabling OAI to scale faster & not be limited to MSFT’s capacity; 3) reduced customer concentration and capex load for MSFT; and 4) avoiding a legal battle with OAI regarding its new AWS agreement for stateful product delivery.”

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