Microsoft Corp (NASDAQ:MSFT) shares have suffered in recent weeks as tech stocks have been sold off, but Goldman Sachs is still convinced of the appeal of the Redmond-based titan.
"Buy with a US$515 target" is its view ahead of Microsoft’s fourth-quarter earnings on July 30.
Goldman expects Microsoft to "execute well" against the bank’s expectations for +16% revenue growth (consensus +15%), with 31% growth from the cloud arm Azure (cons. +30/31%), and EPS of $3.04 (cons. $2.93).
In the wake of mildly disappointing 2024 expectations for most software groups (cyclical or structural), Microsoft’s outlook for 2025 will be an important barometer, Goldman adds.
"Investors will be paying particularly close attention to CapEx, where we don’t expect meaningful revisions to our estimate of $65 billion, as well as Azure AI mix shift and Copilot adoption.
“We think share gains in Azure and leadership in Gen-AI could continue to set Microsoft on a separate trajectory as long as we are in the ‘Infrastructure’ build phase of the Gen-AI cycle.”
The bank adds it expects Microsoft’s ability to meet 2025 guidance for double-digit revenue growth (GS +15%) and double-digit operating income growth (GS +16% vs. cons. 12%).
Leveraging Microsoft’s large Server Products base with cumulative revenues of more than US$100 billion over five years, augmented by the scaling Gen-AI cycle, can see Azure grow to a $200 billion business by 2029, Goldman adds.
“Gen-AI presents a significant market opportunity for Microsoft across Infrastructure, Platforms, and Applications (IPA).
“Additionally, when/if the Infrastructure build slows, we could see meaningful FCF [cash flow] upside and GM leverage.”