Scotiabank has reduced its price target on Microsoft Corporation to $600.00 from $650.00, while keeping a Sector Outperform rating, according to the research note released on Thursday. The revised target still implies substantial upside from Microsoft’s prevailing share price of $481.63, with the company trading at a price-to-earnings ratio of 34.12 and a market capitalization of $3.58 trillion.
The bank described Microsoft’s fiscal second-quarter results as "very solid," but added that the report lacked the extra momentum investors had hoped for because Azure growth fell short of buy-side expectations in both the second and third fiscal quarters. Over the past twelve months Microsoft has delivered revenue growth of 15.59%, producing total revenue of $293.81 billion for that period.
During an analyst callback, Microsoft said it prioritized incremental computing capacity for first-party applications - specifically Microsoft 365 Copilot and GitHub Copilot - and for research and development, with the remaining incremental capacity assigned to Azure. The company stated that, had GPU capacity been allocated exclusively to Azure, Azure revenue growth would have exceeded 40% year-over-year.
Scotiabank noted that these results do not appear to reflect cloud market-share losses to competitors such as Amazon, Google, or Oracle, nor do they indicate issues within the OpenAI ecosystem. The research team highlighted a 59% sequential increase in capital expenditures during the second quarter, viewing that rise in capex as supportive of potential Azure acceleration in the third and fourth fiscal quarters.
Commercial remaining performance obligations increased to $233 billion in the quarter. Scotiabank said that the larger backlog provides improved visibility into Azure’s revenue prospects for the coming year and said the combination of backlog and elevated capex underpinned its recommendation to buy Microsoft shares on any market weakness.
Microsoft’s stock momentum has been notable, with a 6.76% return over the last week. InvestingPro analysis referenced in the note indicates the shares are trading slightly above their Fair Value. Investors interested in additional depth can consult Microsoft’s Pro Research Report, which is available among more than 1,400 US equities covered on InvestingPro.
In its fiscal second-quarter earnings release, Microsoft reported $81 billion in revenue, representing a 17% year-over-year increase and beating analyst estimates by approximately 1%. The company’s non-GAAP earnings per share were $4.41, up 23% year-over-year and ahead of consensus by about 5%.
Despite the overall earnings beat, Microsoft’s Azure cloud business grew 38% in constant currency, a pace that fell slightly short of market expectations and prompted concern among some analysts. Following the earnings, several firms updated their price targets for the company:
- Goldman Sachs reduced its price target to $600 from $655, citing concerns over capital expenditures.
- Piper Sandler lowered its target to $600 from $650 while maintaining an Overweight rating.
- BMO Capital cut its price target to $575 from $625, attributing the change to Azure growth concerns.
- Oppenheimer kept its target at $630 and described Microsoft’s performance as "solid" despite the Azure deceleration.
- RBC Capital maintained an Outperform rating with a $640 price target, noting that results were strong but did not fully satisfy elevated market expectations.
The interplay between capacity allocation, rising capital spending, and the composition of revenue backlog will be central to evaluating Microsoft’s cloud growth trajectory in the near term. Scotiabank’s lowered target reflects these dynamics even as the firm retains a constructive sector view.
Data snapshot
- New Scotiabank price target: $600.00 (from $650.00)
- Microsoft share price cited: $481.63
- P/E ratio cited: 34.12
- Market capitalization cited: $3.58 trillion
- Trailing twelve-month revenue growth: 15.59%
- Trailing twelve-month revenue: $293.81 billion
- Fiscal Q2 revenue: $81 billion (up 17% year-over-year)
- Non-GAAP EPS: $4.41 (up 23% year-over-year)
- Azure growth (constant currency): 38%
- Commercial remaining performance obligations: $233 billion
- Sequential capex increase in Q2: 59%
- One-week stock return cited: 6.76%
Readers should consider that projections and price targets reflect analysts' views and the metrics cited by research teams and management; the note described above represents Scotiabank's assessment as presented in its research communication.