Microsoft Corporation (NASDAQ:MSFT) analysts lowered their price targets after the company beat revenue and earnings-per-share estimates in the second quarter.
Still, Microsoft analysts remain optimistic about the stock, despite investors panicking.
- JPMorgan analyst Mark Murphy maintained an Overweight rating on Microsoft and lowered the price target from $575 to $550.
- Wedbush analyst Dan Ives maintained an Outperform rating and lowered the price target from $625 to $575.
- KeyBanc analyst Jackson Ader maintained an Overweight rating and lowered the price target from $630 to $600.
- Goldman Sachs analyst Gabriela Borges maintained a Buy rating and lowered the price target from $655 to $600.
JPMorgan: Supply Constraints
Microsoft could be limited by CPU supply constraints, impacting the growth of Azure, Murphy said in a new note.
The analyst said Microsoft showed a "solid demand picture" in its quarterly results. Murphy is cautious on some of the company's sectors with revenue upside now showing "less magnitude."
"The underlying drivers include softness in less-critical Gaming and Search/Advertising segments, CPU/GPU capacity constraints in Azure, and a conscientious decision to steer more GPU capacity into Copilot products," Murphy said.
Azure's growth is impressive despite the supply constraints, Murphy added. Both Azure and M365 Commercial are hitting near run-rates of around $100 billion.
"We believe it is wise to appreciate the massive revenue base of the Azure business and reiterate our view that taking a longer-term approach to Azure's growth curve is warranted."
Wedbush: Long-Term Opportunity
Microsoft is pushing a balancing act between high CapEx spending and staying focused on cloud growth, Ives said in a new investor note. Ives notes that investors wanted to see lower CapEx from the company.
"The company is capitalizing on the heightened momentum seen in the AI Revolution reflected in the increased strength it continues to see in its cloud and AI solutions," Ives said.
The analyst said weakness in the share price Thursday represents "strong buying opportunities for long-term investors."
"We have said this is a multi-year journey and Redmond needs to focus on its data center buildouts with more customers heading down the AI path."
KeyBanc: Waiting Game From CapEx Spending
Azure growth was a disappointment to many investors and guidance was also "less inspiring," Ader said in a new investor note.
"We lower our price target based on this as the word of worry shifts from capacity to allocation," Ader said.
The analyst said Azure growth in the quarter and the guidance is "fine but not good enough."
"We know the short-term pain is real – we're living it right now. What we don't know is if the long-term gain is real."
Ader, citing conversations with partners and customers, expects Azure growth to be in the 40th percentile in 2026. However, the company's guidance is 37% to 38%.
The analyst said capacity is being allocated to Copilot customers first, the internal research team second, and then Azure customers third.
Ader said the company's CapEx was higher than expected in the quarter.
"We have to wait for the investments to pay off."
Goldman Sachs: Short-Term Trade Off
Trading short-term Azure growth now could lead to more AI-positioned growth in the long term, Borges wrote.
"We believe the stock reaction reflects another consecutive quarter of higher-than-expected capex without a commensurate increase in Azure growth," Borges said.
The analyst said Microsoft could make more progress in commercializing its AI products over the next two years.
Microsoft Stock Falls on CapEx Worries
MSFT shares are down 11.6% to $425.65 on Thursday, versus a 52-week trading range of $344.79 to $555.45. The stock price is down 4% over the last 52 weeks.
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