Stifel has raised its price target on Microsoft (MSFT) to $540.00 from $520.00 and continues to rate the shares as Buy. The new target suggests upside from Microsoft’s prevailing share price of $481.63, though it remains well below the most optimistic analyst projection of $730.
According to InvestingPro data cited in the firm’s analysis, Microsoft trades at a price-to-earnings ratio of 34.12, which Stifel characterizes as a premium valuation. The firm’s assessment centers on capacity limits that it says have constrained Azure upside to date. Company management has noted the need to allocate datacenter supply across Microsoft’s internal applications, research and development efforts, and external customer demand, a balancing act that Stifel views as restrictive for near-term cloud growth.
Stifel cautioned investors not to expect a meaningful pickup in Azure expansion in the coming quarters despite Microsoft’s reported capital expenditure increase of 66% year-over-year. The firm pointed to significant investment in revenue-generating GPUs and CPUs but emphasized that newly deployed capacity typically requires time to ramp before it contributes to material revenue growth.
On margins, Microsoft management projects a modest year-over-year rise in calendar year 2026 operating margin. Stifel noted that this guidance implies approximately a 200-basis-point year-over-year decline in operating margin in the fourth quarter, which could set the stage for a sizable year-over-year margin contraction in fiscal 2027 given the twin pressures of higher cost of goods sold and growth in operating expenses.
Stifel frames the re-rating case for Microsoft shares around the company achieving Azure growth that meaningfully outpaces its capital expenditure growth, potentially in fiscal 2027. Without that dynamic, Stifel believes the stock may struggle to re-rate in the quarters ahead.
Microsoft remains one of the largest companies by market capitalization at $3.58 trillion, pays a dividend yield of 0.76%, and has increased its dividend for 20 consecutive years. Stifel noted these points while placing emphasis on the cloud growth and margin trajectory that underpin near-term valuation moves.
In related market activity, Microsoft reported fiscal second-quarter 2026 results that exceeded consensus on both earnings and revenue. The company posted earnings per share of $4.14 versus analyst expectations of $3.93, and revenue of $81.3 billion compared with anticipated revenue of $80.23 billion. Despite these beats, Azure growth was reported below market expectations, drawing analyst attention to the cloud segment as a potential constraint on broader upside.
Several brokerages adjusted their targets and views in response to the latest results and the Azure outlook. KeyBanc reduced its price target to $600, citing Azure’s underwhelming growth; Raymond James lowered its target to $580, noting Azure was slightly below investor expectations. Conversely, DA Davidson reiterated a Buy rating with a $650 target, and Truist Securities maintained a $675 target, highlighting strong commercial demand. Taken together, these moves reflect a mixed but generally constructive analyst stance that balances strong overall quarterly performance with specific concerns around cloud momentum.
Stifel’s update underscores the interaction between substantial capital investment in datacenter hardware and the timing of revenue recognition from that investment. The firm’s view is that, absent a clear acceleration of Azure demand relative to capex growth, valuation upside may be limited until cloud expansion visibly outpaces spending increases.
Additional context available: Investors seeking deeper analysis can access Microsoft’s Pro Research Report and other extended research materials through InvestingPro.