Deutsche Bank Reiterates Buy on Microsoft, $550 PT

Deutsche Bank analyst Brad Zelnick reiterated a Buy rating and $550 price target on Microsoft (NASDAQ: MSFT).

“Microsoft is set to report F4Q earnings on Weds. July 29th, where despite bouncing off late June lows shares have been under pressure lagging the S&P 500 by ~28pts YTD.

Based on our conversations, the bear case seems to coalesce around three main factors: (1) rising component prices, namely memory pushing forecasts for CapEx higher and margins and FCF down; (2) persistent doubt about underlying returns on ballooning investments the company is making across its AI portfolio; and (3) concentrated backlog exposure to OpenAI.

While all valid concerns, we believe fears around each of these areas have become overblown and are more than fully reflected in shares now trading at 20x NTM EPS (or we est 18.5x subtracting their stake in OpenAI) vs. a ~29x 3yr & 5yr trailing average, presenting an attractive entry point for a company we believe is poised to continue compounding EPS at a mid-teens+ rate for at least the next several years.”

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