- Azure growth remains the core bull case, with FY2025 Azure revenue topping $75B and Q4 Azure/cloud growth near 39%.
- KeyBanc reiterated Overweight on Microsoft with a $630 target, citing strong enterprise Azure demand and prioritizing capacity toward higher-return workloads like Copilot and customer GPUs/CPUs.
- Jefferies also stays positive with a $675 target, pointing to accelerating Copilot rollout and ongoing cloud share gains beyond AI workloads.
- Key risks are near-term AI capacity constraints, surging AI infrastructure capex (over $30B planned for Q1 FY2026), and potential sector-wide valuation compression.
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Based on recent financial disclosures and analyst research, Microsoft is currently positioned for accelerating growth—particularly through its Azure cloud services and AI integrations like Copilot. In the fourth quarter of fiscal 2025, Microsoft reported revenues of $76.4 billion, up 18% year over year (17% in constant currency), with Azure and other cloud services up ~39% in Q4 and surpassing $75 billion for the full fiscal year. Growth has been driven both by AI workloads, which are increasingly contributing to Azure’s expansion, and by broad enterprise adoption across non-AI cloud services.
Analysts are fairly aligned in their optimism. Jefferies upholds a Buy rating and a price target of $675, citing enterprise Copilot adoption, capacity constraints, and strong cloud tailwinds. KeyBanc, similarly bullish, sets a target of $630 and identifies four priority uses of Azure capacity—customer-facing GPUs, customer-facing CPUs, Copilot-supporting GPUs, and internal research—with the first two generating the highest revenue per megawatt. These use-case priorities suggest that Microsoft is seeking to maximize returns on infrastructure investment while balancing long-term innovation and short-term revenue generation.
However, headwinds are present. Microsoft continues to be constrained by capacity, especially for AI-intensive workloads; adding Azure data center and AI hardware resources takes time and capital. Microsoft expects to face such constraints through the first half of fiscal 2026. It is also making heavy capital investments—Microsoft disclosed plans for over $30 billion cap-ex in Q1 FY 2026 alone. Margin pressure follows from the cost of scaling AI infrastructure—gross margins in Microsoft Cloud fell by 2 points year-over-year, though efficiency gains in Azure partly offset that.
Valuation is a related risk: while Microsoft is trading below certain analyst fair values, recent moves by firms like UBS and Cantor Fitzgerald show lower price targets than earlier estimates, reflecting concerns about valuation compression in the software/cloud sector, even as the fundamentals remain strong. Thus, the upside may be sizable, but investor expectations on execution and capital discipline must be met.
Supporting Notes
- FY 2025 Q4 revenue: $76.4 billion, up 18% (17% in constant currency); operating income up 23%; net income up 24%.
- Intelligent Cloud segment revenue grew 26% year over year, driven by Azure and other cloud services growing ~39%.
- Annual Azure revenue surpassed $75 billion, a ~34% year-over-year gain.
- Jefferies price target $675, maintains Buy rating; notes Copilot adoption accelerating and enterprise demand strong.
- KeyBanc price target $630, Overweight rating; identifies prioritization of capacity toward customer-facing hardware and high revenue per capacity weighted uses.
- Microsoft expects to remain capacity constrained for AI workloads through first half of FY 2026; Q1 capex planned at over $30 billion.
- Cloud gross margins declined ~2 points year-over-year, largely due to scaling AI infrastructure, though offset by Azure efficiency gains.
- Valuation pressure on similar cloud/software companies; Cantor Fitzgerald and UBS have trimmed targets despite strong fundamentals.