Analysts Revisit Microsoft Stock Price Targets After Q1 Earnings

Microsoft Corporation (MSFT) reported its Q1 fiscal 2025 earnings on October 30, 2024, with analysts revisiting their stock price targets following the release. The tech giant's earnings report highlighted strong growth in its cloud services and AI initiatives, leading some analysts to raise their targets, while others expressed concerns about the company's AI spending and cloud growth slowdown.

Microsoft's Q1 earnings showed robust growth in its Intelligent Cloud segment, with server products and cloud services revenue increasing 23% driven by Azure and other cloud services revenue growth of 33% (up 34% in constant currency). The company's AI business is on track to surpass an annual revenue run rate of $10 billion next quarter, making it the fastest business in Microsoft's history to reach this milestone. However, some analysts, like D.A. Davidson's Gil Luria, have lowered their price targets due to concerns about Microsoft's AI spending and the company's lack of diversity in AI accelerators compared to AWS and Google Cloud.


Despite the concerns, many analysts remain bullish on Microsoft's long-term prospects. Morgan Stanley analyst Keith Weiss noted that investors should see rewards for waiting through supply constraints that limit growth in Microsoft's generative AI business. CFRA analyst Angelo Zino highlighted that the AI contribution to Azure growth is also improving, with the figure incrementally increasing over the last several quarters as organizations invest more heavily in AI workloads.


Microsoft's broader improvements in its personal computing, productivity, and business units, as well as the newly created Microsoft 365 Consumer cloud unit, suggest that the company's breadth will allow for greater generation of AI-related profits once capacity is able to meet ongoing client demand. This has further bolstered analysts' confidence in the company's growth prospects and led to upward revisions in their price targets.

The average price target for Microsoft is now $504.6, an increase of 16.66% from the latest price, with a consensus rating of "Strong Buy." This indicates that analysts expect Microsoft to continue its strong growth trajectory, driven by its AI initiatives and cloud services. Despite recent concerns about AI spending and cloud growth, analysts remain bullish on Microsoft's long-term prospects.

In conclusion, analysts' price target revisions for Microsoft following its Q1 earnings reflect a mixed sentiment, with some raising their targets while others lower theirs. The company's strong cloud growth, particularly in Azure, and its aggressive AI investments have led to upward revisions in price targets. However, concerns about AI spending and supply constraints have also impacted some analysts' views. Overall, analysts remain optimistic about Microsoft's long-term prospects, with an average price target of $504.6 and a consensus rating of "Strong Buy."