BMO Capital has lowered its 12-month price target for Microsoft (NASDAQ:MSFT) to $575.00 from $625.00 while retaining an Outperform rating on the stock.
The move followed Microsoft’s December-quarter results, in which Azure grew 38% year-over-year in constant currency. BMO described that pace as "slightly disappointing," explaining that consensus expectations were likely one to two percentage points higher than the reported growth rate.
In its analyst note, BMO also underscored Microsoft’s guidance for the March quarter, which called for Azure growth of 37-38% year-over-year. That outlook, the firm said, similarly missed investor hopes by roughly one to two percentage points.
BMO identified two factors that, in combination, weighed on its view of the quarter: the softer-than-expected Azure growth and an acceleration in cash capital expenditures that limits free cash flow growth. The analysts characterized the pairing of elevated capex and subdued top-line cloud growth as "a bad combination this quarter" for Microsoft.
Despite these headwinds, BMO emphasized areas of resilience within Microsoft’s business. The research note highlighted that commercial bookings and Remaining Performance Obligation (RPO) growth continue to look "impressive." The firm said that most of its model inputs for Microsoft were nudged slightly higher even as it trimmed the price target.
Microsoft’s reported quarterly results showed revenue of $81 billion, up 17% year-over-year, and non-GAAP earnings per share of $4.41, a 23% increase versus the prior year. While Azure’s 38% constant-currency growth marginally outpaced the company’s internal guidance, it did not meet what some investors had been expecting.
Analyst responses to Microsoft’s quarter were varied. RBC Capital left its Outperform rating intact with a $640 price target. Goldman Sachs reduced its target to $600, citing concerns related to capital expenditures. Piper Sandler also trimmed its target to $600 while maintaining an Overweight rating. Stifel, by contrast, raised its target to $540 and pointed to capacity constraints in Azure as a factor. DA Davidson reiterated a $650 price target, highlighting Microsoft’s strong financial performance.
Taken together, these actions reflect a range of views among sell-side analysts about how to weigh Microsoft’s robust revenue and earnings against cloud growth that fell short of investor expectations and rising cash investment. For investors and market watchers, the debate centers on the pace and durability of Azure expansion and the near-term effect of higher capex on free cash flow.