Morgan Stanley has revised its value goal for Microsoft (NASDAQ:), reducing it from $520 to $506 following the tech large’s newest earnings report.
Microsoft introduced plans to extend spending on AI infrastructure this fiscal yr regardless of experiencing slower development in its cloud enterprise, suggesting that the returns from important investments in AI expertise would possibly take longer to materialize than Wall Avenue initially anticipated.
MSFT shares fell as a lot as 7% in after-hours buying and selling, although these losses have been later lowered to 1.5%.
Regardless of its revision, Morgan Stanley analysts maintained an optimistic outlook on Microsoft inventory, advising traders “ to take the opportunity to build positions in this long-term winner on the dip.”
Microsoft’s revenues for the fiscal 2025 grew 16% year-over-year to $245 billion, whereas working revenue elevated by 22% to $109 billion. EPS rose 20% to $11.80, and free money circulate surged 25% to $74 billion.
Nevertheless, Morgan Stanley analysts level out that the steep funding ramp has led to increased capital expenditures, which rose from an estimated $63 billion to $78 billion for FY25.
Because of this, the agency’s FY25 EPS estimate has been adjusted down by 3.0% to $13.06.
Nonetheless, the analysts’ bullishness in Microsoft’s long-term potential stays intact.
“Our conviction in Microsoft’s ability to effectively monetize against this investment (and not overspend) also rises, given management commentary on the call,” the analysts famous.
They emphasised the chance forward for Microsoft, notably in automating enterprise working bills, projecting that Generative AI income might attain $67 billion by fiscal 2029 within the base case and $121 billion within the bull case.
“With these projected levels of capex investment and management aligning that investment to current demand trends, our bull case estimates look increasingly probably, in our view,” the analysts wrote.
“With ~23% upside to our $506 price target after-hours, we remain firmly Overweight the clearest AI winner in software,” they added.
