On Monday, Piper Sandler's technology sector analyst increased the price target for Microsoft Corporation (NASDAQ:MSFT) to $520 from $470, while keeping an Overweight rating on the shares. Bracelin highlighted Microsoft as one of the top picks for 2025, emphasizing its potential to capitalize on artificial intelligence (AI) trends alongside other major players such as Salesforce (NYSE:CRM) and Snowflake (NYSE:SNOW).
Microsoft is seen as entering a transformative period where traditional valuation metrics like price-to-earnings (P/E) and enterprise value to free cash flow (EV/FCF) may not fully capture the company's growth trajectory. This is due to Microsoft's aggressive investments in AI, which are expected to drive higher profit growth in the long term.
However, these investments, particularly in OpenAI and capital expenditures plus lease obligations, could place temporary pressure on earnings per share (EPS) in fiscal years 2025 and 2026.
Bracelin also pointed out potential catalysts for Microsoft's stock. One such event is the Microsoft AI Tour, with the New York stop scheduled for January 30, where Executive Vice President of Cloud & AI Scott Guthrie will deliver a keynote address. This tour is part of a multi-city event aimed at engaging customers and partners.
Moreover, Microsoft has reached a significant milestone by becoming the first company to surpass $10 billion in AI revenue as of December. This achievement underscores the company's leading position in the rapidly growing AI sector.
Finally, the analyst anticipates an acceleration of Microsoft's Azure cloud computing service in the second half of fiscal year 2025. The growth of Azure is critical for Microsoft as it competes in the cloud industry against rivals such as Amazon (NASDAQ:AMZN) Web Services and Google (NASDAQ:GOOGL) Cloud Platform.
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