TLDR
- Baird initiated coverage of Microsoft stock with an Outperform rating and a $600 price target, citing the company’s leadership in AI and cloud computing.
- Microsoft reported 18% revenue growth to $77.7 billion in its first quarter of fiscal 2026, with Azure growing 40% year over year.
- The company’s cloud business now represents roughly 60% of total revenue and expanded 25% in constant currency.
- Microsoft maintains strong profitability with a 49% operating margin and 33% free cash flow margin despite ramping up AI infrastructure spending.
- Analyst William Power expects the company to generate $74 billion in free cash flow for fiscal 2026, even as capital expenditures rise from $88 billion to $143 billion.
Baird has initiated coverage of Microsoft with an Outperform rating and a $600 price target. The investment firm believes the tech giant is well-positioned to maintain double-digit growth through its cloud and AI businesses.
Analyst William Power, ranked No. 309 among more than 10,100 analysts on TipRanks, sees Microsoft as a leader in the AI revolution. The company’s infrastructure and applications, combined with its partnership with OpenAI, create an end-to-end platform for both enterprises and consumers.
Microsoft’s latest quarterly results support this bullish outlook. The company reported total revenue of $77.7 billion in the first quarter of fiscal 2026, up 18% from the prior year.
Azure led the charge with 40% year-over-year growth. The cloud platform continues to benefit from AI-driven demand as businesses expand their digital infrastructure.
Microsoft’s total cloud business now accounts for about 60% of revenue. This segment grew 25% in constant currency during the quarter.
Copilot adoption has reached 150 million monthly active users. The AI assistant represents a key growth driver as Microsoft integrates artificial intelligence across its product lineup.
Strong Performance Across Core Products
Core applications showed solid momentum in the quarter. Microsoft 365, LinkedIn, and Dynamics grew 17% collectively.
These products benefit from Microsoft’s broad reach across enterprise and consumer markets. The company’s existing customer relationships provide a foundation for introducing new AI features.
Power points to Microsoft’s profitability as a key differentiator. The company posted a 49% operating margin in the latest quarter.
Free cash flow margin reached 33%. This strong cash generation supports continued investment in AI infrastructure while returning capital to shareholders.
Heavy Investment in AI Infrastructure
Microsoft is ramping up capital expenditures to support AI growth. The company’s capex is expected to rise from $88 billion in fiscal 2025 to $143 billion in fiscal 2026.
Despite this increase in spending, Power forecasts Microsoft will generate $74 billion in free cash flow for fiscal 2026. The company’s scale allows it to invest heavily while maintaining strong profitability.
Microsoft shares currently trade at about 29 times Baird’s 2026 adjusted earnings per share estimate. This represents a premium to the broader market but sits below recent highs.
Power argues the valuation is justified by Microsoft’s growth profile. The combination of double-digit revenue growth and high margins should compare favorably to other large-cap stocks.
Microsoft stock has gained 19.4% year-to-date. However, shares have pulled back 2.1% over the past month as investors reassess AI stock valuations.
Power acknowledges growing AI speculation in the market. However, he believes Microsoft’s valuation doesn’t appear stretched relative to its growth outlook.
Wall Street maintains a Strong Buy consensus rating on Microsoft. The rating is based on 34 unanimous Buy recommendations from analysts.
The average price target stands at $633.14. This implies about 26% upside potential from current levels.
The post Microsoft (MSFT) Stock: Why This Analyst Sees 19% Upside Despite Recent Pullback appeared first on Blockonomi.
This articles is written by : Nermeen Nabil Khear Abdelmalak
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