KeyBanc Capital Markets has reaffirmed its Overweight rating on Microsoft Corporation (NASDAQ: MSFT), assigning a price target of $630, suggesting a substantial upside of approximately 40% compared to the stock's latest price near $451. Data from InvestingPro indicates that Microsoft is currently valued below its estimated Fair Value range, with analyst price targets spanning from $450 to $730 per share.
The firm's recent analysis emphasizes an accelerating demand from enterprise customers for Microsoft Azure, the company's cloud computing platform, which is anticipated to underpin continued robust financial performance. Microsoft's revenue grew by 15.59% over the previous twelve months, and projections indicate an estimated growth rate of 16% for fiscal year 2026.
Within Azure, KeyBanc identifies four crucial segments for capacity allocation: customer-facing GPUs, customer-facing CPUs, GPUs utilized in supporting Microsoft's proprietary AI product Copilot, and capacity dedicated to internal research efforts. Among these, the customer-facing GPUs and CPUs deliver the highest revenue per unit of energy consumption, underscoring their financial significance.
The report suggests that Microsoft approaches capacity management akin to capital allocation strategies, balancing investments across both immediate and long-term objectives involving these four categories. This balanced approach facilitates adaptability to evolving market demands and technological developments.
Looking ahead, KeyBanc indicates that with sustained investment particularly in Copilot AI and internal research initiatives, Microsoft could reallocate capacity toward these higher-margin priorities. Such a shift holds the potential to elevate Azure's growth rate beyond 40% sometime during fiscal 2026.
Additional developments bolstering Microsoft's outlook include a recently awarded $170 million contract with the U.S. Department of War, a Cloud One Program initiative delivering Azure cloud capabilities to support Air Force operational needs. Furthermore, Microsoft has secured a high-profile sponsorship agreement with the Mercedes Formula One team, featuring prominent branding on the new W17 race car. While details on financial terms remain undisclosed, market reports estimate the annual value of this partnership could reach approximately $60 million.
Reinforcing the bullish market view, Jefferies has reiterated a Buy rating on Microsoft shares with a price objective of $675, highlighting the company's ongoing significant investments in artificial intelligence. Similarly, Stifel has maintained a Buy stance, noting Microsoft's substantial annual expenditure of $500 million on AI models developed by Anthropic, reflecting a committed strategy to fortify AI capabilities.
Complementing these enterprise initiatives, OpenAI, an organization backed by Microsoft, is introducing an age verification mechanism for its ChatGPT consumer plans. This system aims to enhance user safety by identifying and restricting access for users under the age of 18.