Microsoft Corp. (NYSE:MSFT) could be setting up for another long run of growth that echoes its strongest eras, even as investors remain uneasy about AI spending and cloud visibility.
In a note shared Monday, Goldman Sachs analyst Gabriela Borges, CFA said Microsoft's positioning in the artificial intelligence stack — from silicon to software — makes it the best placed among large-cap techs to benefit from what she calls "compounding AI product cycles."
The firm resumed coverage of Microsoft stock with a Buy rating and raised its 12-month price target from $630 to $655, implying about 37% upside from the Jan. 9 closing price.
Microsoft Remains A Compounding AI Growth Engine: Goldman
According to Borges, the market still views Microsoft through an old lens—one that treats AI spend as a near-term drag and assumes the payoff is uncertain—while Goldman sees a company positioned to compound across multiple layers of the AI stack.
Microsoft turned 50 in 2025. It's been public since 1986. It's also one of the most widely owned, most debated megacaps in the market.
Yet, even after five decades of reinvention, Goldman frames Microsoft as "still one of the best secular growth stories in Technology," and suggests the next leg of value creation is less about a single product and more about compounding adoption across the stack.
Borges indicates there are still "areas of discovery value" in the stock tied to AI — specifically where investor perception is more bearish than Microsoft's competitive reality.
Goldman also said Microsoft has taken steps to "win in multiple ways while limiting its downside to any one particular vendor or approach," effectively "maximizing its ‘sharpe ratio' of earnings power."
Azure AI: Revenue, Margins, And Market Share
Goldman projects Azure AI revenue to grow at a compound annual rate of 66% through 2030 fiscal year.
This growth is supported by continued investments and a strategy that favors inference — real-time model execution — over training, which is capital-intensive and lower margin.
Microsoft estimates that about 30% of its 2026 fiscal year compute capacity will monetize directly as Azure AI revenue, with an additional 45% tied to classic Azure.
Borges said Azure AI gross margins have improved from negative 50% in 2024 fiscal year to about 17% in 2025 fiscal year, with a long-term goal of returning to pre-AI Azure gross margins near 60%.
What About Microsoft’s Heavy Capex Debate?
One reason Goldman thinks investors are misreading the Microsoft’s story is capex. The popular shortcut has been to treat Microsoft's spending as a direct proxy for Azure's next quarter or two of growth.
Borges pushes back, highlighting Microsoft's own reminder that "not all capex translates directly to Azure revenue growth."
In a supply-constrained environment, she notes the company is also allocating to "Microsoft internal AI given its strategic importance," and to "its 1P applications business," which she estimates has "structurally better unit economics than Azure today."
Goldman forecasts $148 billion in capital expenditures for Microsoft in 2026 fiscal year — a fourfold increase from 2022.
Can Microsoft Margins Recover In An AI-heavy world?
Goldman believes Microsoft's focus on efficiency is intensifying. Borges said supply constraints and Microsoft's “first position in compute AI" are driving a "maniacal focus on hardware, software, and human capital efficiency."
She said Microsoft believes Azure AI gross margins can return to pre-AI levels for the traditional cloud business. Goldman estimates margins could rise from the low 30% range today to the high 60% range over five to seven years.
Borges added that Microsoft bears "minimal LLM token costs beyond the compute needed to process them," given its relationship with OpenAI and its ability to "pick and mix models based on price/performance."
Goldman views Microsoft’s AI strategy as a blend of vertical integration and strategic diversification. The company holds a 27% stake in OpenAI and has also invested in Anthropic.
How Big Could The Opportunity Be?
In its upside scenario, Goldman estimates Microsoft can grow earnings per share to over $35 by 2030 fiscal year. This implies more than 20% annual growth.
That's well above peers with median $1 trillion-plus market caps that are growing EPS in the mid-teens, she said.
Borges said Microsoft's breadth of investments (i.e., AI and quantum) "set Microsoft apart from the broader software ecosystem."
She added that while many initiatives remain early, the company's "vision and capital to make strategic investments today" support confidence that Microsoft can continue benefiting from "the next waves of secular growth in technology."
After 50 years of navigating major technology shifts, Goldman's view is clear. The next decade may not look like a slowdown at Microsoft, but rather another chapter of compounding growth.
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