Meetings with the chief financial officers of Microsoft Corporation (NASDAQ:MSFT)’s business units left Bank of America analysts with a higher conviction on the durability of growth in the company’s core Office and Azure franchises.
In an update to clients, the analysts increased their price objective on Microsoft stock to $430 per share from $415, while reiterating their ‘Buy’ rating, to reflect their belief in the durability of growth of the company’s cloud and AI offerings.
“We believe that there is potential for commercial office to accelerate from the current mid-teens growth level in the coming quarters from the gradual contribution from the new M365 copilot," the analysts wrote.
They estimate that each 1% penetration represents $576 million revenue and 1.5% incremental growth.
Analysts at Bank of America added that in the Azure business, ongoing acceleration of OpenAI and the potential for improving public cloud workload migration exiting the tougher macroeconomic environment are likely to drive upside to their estimates for mid-20s growth.
As well, they believe that 8-10% year-over-year growth from its commercial office segment on a base of roughly 440 million M365 active subscribers is sustainable long term.
Shares of Microsoft fell 2.3% to close at $365.93 on Thursday but have gained 53% year to date.