Microsoft's stock has fallen 20% year-to-date, but Goldman Sachs analyst Gabriela Borges maintains a Buy rating with a price target of $610, indicating potential upside of 58%. The company is anticipated to reveal its fiscal Q4 earnings on July 29, and expectations are low among investors, which may present an opportunity for positive surprises.
Outlook on Azure Growth
Current trading for Microsoft sits at approximately $385, significantly lower than Goldman's optimistic target. Borges highlights three critical factors investors should monitor closely: the acceleration of Azure's growth, the reliance on Nvidia GPUs, and potential competition from AI tools such as Claude Cowork that could impact Office 365.
Specifically, Borges projects that Azure's growth for Q4 will likely be in the range of 40-41% in constant currency, slightly exceeding Microsoft's guidance of 39-40%. Looking forward to Q1, she anticipates similar growth figures, indicating that Azure’s growth is expected to improve as supply constraints ease and more capacity becomes available.
Capex and Copilot Concerns
Additionally, Goldman has revised its capital expenditure (capex) estimates for fiscal years 2028 to 2030, increasing FY28 spending to $319 billion, which is notably above previous expectations. Borges notes that the successful adoption of the Copilot feature remains uncertain, with a sustainable acceleration in Microsoft 365 likely needing more time. However, she does foresee positive trends, including continued seat growth and increased AI-related revenue.
To achieve a turnaround in its stock performance, Microsoft must show Azure outperforming expectations, provide more clarity on chip supply, and demonstrate that Copilot can generate revenue effectively. The broader tech landscape is competitive, especially with major players like Alphabet and Amazon ramping up their AI investments, which adds pressure on Microsoft.
This material is for informational purposes only and is not financial advice.
