Goldman Sachs Boosts Microsoft Target Price 14% on AI Growth

Goldman Sachs has reaffirmed its "buy" rating for Microsoft (MSFT.US), citing the company's investments in artificial intelligence (AI) as a key driver for long-term growth. Analyst Kash Rangan maintained the rating and raised the target price for the stock by $70 to $550. Rangan highlighted that the four-day Microsoft Build 2025 developer conference has strengthened the company's position in the AI sector. The conference showcased Microsoft's advancements in AI technology, which are expected to enhance the company's product offerings and drive future growth.

The reaffirmation of the "buy" rating reflects Goldman Sachs' confidence in Microsoft's strategic investments and its potential to capitalize on the growing demand for AI solutions. The firm believes that Microsoft's AI initiatives will not only improve its existing services but also open up new revenue streams, positioning the company for sustained growth in the coming years. Rangan emphasized that these investments will help position Microsoft as a leader in the developer tools ecosystem, particularly in early-stage generative AI applications. This leadership will foster a robust and interoperable intelligent agent AI ecosystem, driving AI compute consumption on Azure and promoting the adoption of Microsoft's platforms and applications. These platforms and applications will become more dynamic and vibrant through standardized, interconnected tools.

Rangan further highlighted that Microsoft's model context protocol is a significant advancement within its AI ecosystem. This protocol allows developers to integrate AI models with external systems. Additionally, Microsoft's GitHub Copilot and Copilot Studio were noted as key drivers in the rapid expansion of the company's AI business. Other catalysts include the Azure AI Foundry platform, designed for AI agents, and Microsoft's ongoing investments in expanding Azure cloud regions and data centers.

Rangan expressed continued belief that as generative AI transitions from the infrastructure layer to the platform/application layer, Microsoft is well-positioned to capitalize on this shift. Similar to the transition from on-premises deployment to cloud transformation, this shift could result in a more capital-efficient and higher-margin recurring revenue model. This strategic positioning underscores Microsoft's commitment to leveraging AI to drive long-term growth and maintain its competitive edge in the technology sector.