Microsoft (NASDAQ:MSFT) is set to report its fiscal third-quarter (March quarter) earnings on Wednesday, April 29, with the print arriving against a cautious backdrop for the software space as fears grow that AI could spell trouble for the segment.
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Microsoft represents an interesting conundrum: on the one hand, it is working hard to develop its AI infrastructure and is closely associated with AI leaders such as OpenAI. But at the same time, there is a growing fear among investors that AI companies will make legacy software companies’ offerings redundant.
So, where to from here? As billionaire investor Ken Fisher points out, no one really knows. Fisher, the founder, executive chairman and co-CIO of Fisher Investments, a global investment firm with $293 billion of assets under management, makes the case that despite all the noise, it is impossible to tell how AI will ultimately end up shaping our lives.
“AI has gone fully hyperbolic,” Fisher, who has a net worth of $13.2 billion, recently said. “Not the stocks or investment profits – though they surely leapt in recent years. The chatter, hype, extreme claims. Headlines herald an impending ‘tsunami,’ ‘adapt-or-die’ moments and looming ‘apocalypses’ for jobs, industries… even humanity… First, I know not just how AI’s evolution plays out. No one does.”
In the meantime, however, the investor appears confident Microsoft will have a big role to play in this new paradigm. As of the end of Q4, Fisher held 25,300,410 MSFT shares, a stake currently worth more than $10.5 billion.
According to Evercore analyst Kirk Materne, that confidence is not misplaced. Ahead of the FQ3 readout, Materne thinks Microsoft appears well-positioned to come good on its AI endeavors, although he also stresses investors will need to be patient to reap the rewards.
“Solid F3Q results expected, but the real story is building momentum for Azure and Copilot into the back half of the calendar year, where upside optionality on capacity and AI monetization could get more interesting,” Materne explained. “Investors may need to be patient as new capacity ramps and Copilot’s value proposition matures, but the long-term compounding story remains firmly intact.”
Materne doesn’t brush off investor concerns around CapEx, but thinks the investment will pay off. The analyst expects CapEx expansion to stay high through FY26 (he forecasts 67% growth), likely exceeding CFFO and leading to a slight decline in FCF (-4%) but says this is the “price of chasing the large AI opportunity.”
Conveying his confidence, Materne assigns MSFT shares an Outperform (i.e., Buy) rating, alongside a $580 price target. The implication for investors? Upside of 36% from current levels. (To watch Materne’s track record, click here)
MSFT gets strong support elsewhere on the Street. With an additional 34 Buys and 3 Holds, the stock claims a Strong Buy consensus rating. Going by the $575.08 average price target, a year from now, shares will be changing hands for a ~36% premium. (See MSFT stock forecast)
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.