Microsoft (NASDAQ:MSFT) will get its moment this evening – drumroll, please – to soothe investor nerves that have crept in since the company last reported earnings at the end of October. The tech giant will release fiscal second-quarter (December quarter) results after the close, with the stock down by 11% since then.
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Goldman Sachs analyst Gabriela Borges thinks the pullback reflects a mix of broader worries about the OpenAI ecosystem and potential “app software disintermediation” – particularly in productivity and business processes, which account for 43% of revenue – alongside more company-specific concerns around Azure’s “competitive positioning.”
Yet, heading into the print, Borges believes the “risk/reward is skewed positive.” The analyst sees a “reasonable upside scenario” where Microsoft reports revenue about 2–3% above the Street at $80 billion (as per Visible Alpha), similar to last quarter’s beat. Additionally, EPS could come in roughly 4–6% above the Street at $3.95, excluding OpenAI-related accounting.
Borges understands the “heightened focus” on Azure revenue growth and sees a route toward low-to-mid 40% growth over the next 4 quarters. For FQ2, the analyst thinks 39% cc growth is achievable, compared to the guidance of 37% cc. For FQ3, she expects guidance to fall in the 38%–40% range, compared to the Street’s estimate of 38%.
That said, Microsoft takes a more strategic approach to capex than just driving Azure growth, directing GPUs to support first-party applications like Copilot – which likely offers stronger unit economics than Azure currently – and to internal R&D with MAI, where it could achieve superior LLM performance for specialized use cases.
“Taken together,” Borges added, “our capex breakdown gives us confidence in both 12-24 month Azure outperformance and the ROI on compute allocated outside of Azure.”
The analyst’s checks also indicate that the budget environment is more positive than a year ago, and that regular cloud migrations and Copilot adoption have picked up. Furthermore, Microsoft’s new agreement with Anthropic may have slightly boosted Azure’s competitiveness relative to AWS.
All told, Borges takes a decidedly upbeat stance ahead of the results. “We continue to recommend the stock and see Microsoft as best positioned in our coverage universe to benefit from compounding AI product cycles, beginning with its leadership position in AI compute, and extending to copilot and agent orchestration at the platform and application layers,” the analyst summed up.
The Goldman Sachs analyst is clearly bullish on MSFT, tagging the stock with a Buy rating and a $655 price target. That sets up potential upside of about 37% over the next year. (To watch Borges’ track record, click here)
The broader Street isn’t far behind; the average price target of $618.85 leaves room for ~29% gains over the next 12 months. With 33 analysts calling it a Buy and only 2 sitting on the fence, Microsoft walks away with a Strong Buy consensus rating. (See MSFT stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.