Barclays Lowers Microsoft Price Target to $512
Barclays analyst Raimo Lenschow lowered the price target on Microsoft (NASDAQ: MSFT) to $512 (from $545) while maintaining an Overweight rating.
“Expectations were relatively low going into MSFT’s Q4 earnings.
Some Azure growth acceleration was expected, but 43% YoY growth in Q4 FY26 and 45% guided growth for Q1 were much better (Q4 guidance was 39-40%).
On top of this, we are also starting to see an acceleration of the M365 Commercial Office with 16% YoY underlying constant currency (cc) growth (vs. 15% in Q3, 14% in Q2).
The main driver of growth is now Copilot (was E5 in past), which shows that MSFT is starting to get a second AI growth accelerator, and management guided for a growth acceleration in FY27, partly helped by the new consumption price model.
Compared to some of the other hyperscalers, MSFT seems to have continued with its disciplined investment approach with CY26 capex unchanged at $190bn ($175bn reported after the accounting change) and an ongoing commitment to positive FCF for FY27.
We think investors should like this set-up of better growth but ongoing investment discipline, especially considering the relative underperformance of the shares so far this year (MSFT -19% YTD, vs.
S&P +7%). Intelligent Cloud grew +31.6% y/y (+31% cc), or 3.2% ahead of Street estimates. Azure growth accelerated to 43% YoY in cc (vs. 39% last quarter).
The Productivity & Business Processes segment was up +14.3% (+14% cc). More Personal Computing beat expectations by 4.8% though was down -4.4% y/y (-5% in cc).
Gross margin of 67.2% was ahead of consensus (66.5%). Operating margins were ahead as well (45.1% vs.
44.6% consensus), and EPS beat by ~13% (supported by a $3.2bn gain from MSFT’s investment in Anthropic and lower-than-expected expenses related to the Voluntary Retirement Program, which were partially offset by severance expense and impairment charges in XBOX).”
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