On Friday, KeyBanc Capital Markets reiterated its Overweight rating on Microsoft Corporation (NASDAQ:) with a steady price target of $575.00. The tech giant, currently valued at $3.32 trillion, maintains a “GREAT” financial health score according to InvestingPro analysis, with notably low price volatility and strong profitability metrics. The firm’s analysis highlighted a significant increase in Azure instances, indicating stronger than expected non-AI growth, due to a rise in CPU usage. Over the December quarter, which aligns with Microsoft’s fiscal second quarter, Azure instances saw a 17.3% sequential increase and a 28.0% rise year-on-year, marking multi-year highs for the cloud computing service. This growth aligns with Microsoft’s impressive overall revenue growth of 16.44% over the last twelve months, as reported by InvestingPro.
The increase in Azure instances is noteworthy against the backdrop of concerns about capacity constraints potentially hindering growth. This surge is partly attributed to the launch of Microsoft’s Azure CPUs, which are estimated to have contributed 2.5% to the sequential growth and 2.8% to the year-on-year growth. Additionally, CPUs from Intel (NASDAQ:) and AMD (NASDAQ:) were significant contributors to this expansion. Collectively, these three sources accounted for 99.8% of the instance growth in the past quarter.
KeyBanc’s analysis suggests that the substantial growth in Azure instances is predominantly driven by CPU-based services, which may indicate that AI-related capacity constraints have not been fully resolved. The report emphasizes that while the number of instances has increased notably, the growth in GPU availability, particularly for advanced applications, may still be limited.
The firm remains optimistic about non-AI Azure revenue, projecting a $250 million increase over consensus estimates for Azure revenue in the second fiscal quarter of 2025. This optimism is rooted in the stronger performance of non-AI Azure services compared to AI-related revenues. The data points to a robust increase in instances towards the end of the previous year, mainly from Intel, AMD, and in-house CPUs, while the GPU segment might still face sourcing challenges. With Microsoft’s upcoming earnings report just 5 days away, InvestingPro subscribers can access 15+ additional exclusive insights and a comprehensive Pro Research Report that provides deep-dive analysis of Microsoft’s financial health and growth prospects.
In other recent news, Microsoft and Kopin Corp have been the focus of recent developments in the tech industry. UBS analysts suggest a modest improvement in cloud infrastructure spending, with Microsoft poised to benefit significantly from the ongoing shift from on-premise systems to cloud services. However, UBS anticipates limited immediate upside for Azure, Microsoft’s cloud service. Meanwhile, Kopin Corp has expressed interest in the U.S. Army’s recompetition process for Microsoft’s Integrated Visual Augmentation System (IVAS) production contract, which has led to a Buy rating from Lake Street Capital Markets analyst.
Microsoft also announced the immediate resignation of Christopher D. Young, Executive Vice President of Business Development, Strategy, and Ventures. The company has not announced immediate changes to its executive team or business strategy following Young’s departure. Additionally, Microsoft stands to gain from the Stargate Project, an investment initiative aimed at expanding AI infrastructure in the United States, which is expected to invest up to $500 billion over the next four years.
Moreover, a $100 billion joint venture in the AI sector has been announced, involving SoftBank (TYO:) Group Corp., OpenAI, and Oracle Corp (NYSE:). The venture aims to fund AI infrastructure, with a goal to raise funding to at least $500 billion. Microsoft Corp ., and Nvidia Corp . (NASDAQ:), among others, will provide technology support for this venture. These are recent developments in the tech industry.
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KeyBanc maintains $575 target on Microsoft stock post-analysis
KeyBanc has reiterated its target price of $575 on Microsoft stock following a thorough analysis of the company’s financials and market conditions. The firm believes that Microsoft’s strong performance in cloud computing and software services will continue to drive growth in the coming quarters.
The tech giant has been a standout performer in the technology sector, with its Azure cloud platform and Office 365 suite of productivity tools leading the way. Microsoft’s recent acquisition of LinkedIn has also been seen as a strategic move to further strengthen its position in the market.
KeyBanc’s target price of $575 represents a significant upside potential from Microsoft’s current trading price, indicating that the firm remains bullish on the stock’s long-term prospects. Investors who are looking for a solid tech investment may want to consider adding Microsoft to their portfolio based on KeyBanc’s analysis and target price.
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