Goldman Sachs Analyst Boosts Microsoft Price Target by 14.4% on Strong Buy Rating

Goldman Sachs's Kash Rangan raised their price target on Microsoft (NASDAQ: MSFT) by 14.4% from $450 to $515 on 2024/04/26. The analyst maintained their Strong Buy rating on the stock. Rangan's update came after assessing Microsoft's Q3 2024 earnings report, which was released on April 25th. According to Rangan, Microsoft has a "unique growth profile" at scale, which positions it to achieve double-digit growth in revenue and earnings in FY 2025. The analyst highlighted the company's extensive AI service offerings and its focus on increasing efficiency as factors that will contribute to its success in profiting from gen AI. Additionally, Goldman Sachs revised their Azure forecasts to reflect the drivers they believe will sustain 25% growth through FY 2025.

In the Q3 2024 earnings report, Microsoft reported impressive figures. The company's EPS of $2.94 surpassed the Zacks Consensus Estimate by 4.63% and showed a 20% increase compared to Q3 2023's $2.45. Revenue for the quarter stood at $61.86 billion, beating the Zacks Consensus Estimate by 2% and showing a 17% increase compared to Q3 2023's $52.86 billion. Microsoft also saw growth across its segments, with the Productivity & Business Processes segment reporting revenue of $19.6 billion (up 12% Y/Y), the Intelligent Cloud segment reporting revenue of $26.7 billion (up 21% Y/Y), and the More Personal Computing segment reporting revenue of $15.6 billion (up 17% Y/Y). The company's operating income for the quarter reached $27.6 billion, representing a 23% increase compared to the previous year.

Looking ahead, Microsoft's management provided guidance for Q4 2024 and FY 2025. For Q4 2024, the company expects the Productivity & Business Processes segment revenue to range between $19.9 billion and $20.2 billion, the Intelligent Cloud segment revenue to range between $28.4 billion and $28.7 billion, and the More Personal Computing segment revenue to range between $15.2 billion and $15.6 billion. For FY 2025, Microsoft anticipates double-digit growth in both revenue and operating income.

Chairman & CEO Satya Nadella emphasized the company's AI transformation, stating, "Microsoft Copilot and the Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry." Executive VP & CFO Amy Hood attributed the strong performance to Microsoft's sales teams and partners, highlighting that Microsoft Cloud revenue reached $35.1 billion, up 23% Y/Y.

Following Goldman Sachs's update, other analysts also revised their ratings and price targets for Microsoft on April 26th. Bernstein's Mark Moerdler raised their price target by 5.2%, from $465 to $489, and maintained their Buy rating on the stock. JP Morgan's Mark Murphy raised their price target by 6.8%, from $440 to $470, and maintained their Strong Buy rating. Piper Sandler's Brent A. Bracelin raised their price target by 2.2%, from $455 to $465, and reiterated their Strong Buy rating.

The overall sentiment among analysts remains overwhelmingly positive for Microsoft. Currently, 100% of top-rated analysts rate MSFT as a Strong Buy or Buy, with no analysts recommending a Hold or suggesting selling the stock.

Analysts' consensus forecast suggests that Microsoft's upcoming year will deliver earnings per share (EPS) of $12.67. If this forecast holds true, it would represent a 9.3% increase on a year-over-year basis.

In terms of stock performance, Microsoft has seen a 1.8% increase in its stock price since the release of its Q3 2024 earnings report on April 25th. On a year-over-year basis, the stock has surged by 37.6%, outpacing the S&P 500, which has grown by 25.7% during the same period.

Goldman Sachs analyst Kash Rangan, who provided the recent update on Microsoft, is ranked in the top 13% of Wall Street analysts by WallStreetZen. With an average return of 4.9% and a 55.1% win rate, Rangan specializes in the Consumer Cyclical and Technology sectors, among others.

Microsoft Corporation is a global company that develops, licenses, and supports software, services, devices, and solutions. The company operates in three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Its Productivity and Business Processes segment offers a range of well-known products such as Office, Exchange, SharePoint, Microsoft Teams, and Skype for Business, among others. The Intelligent Cloud segment includes services such as Azure, SQL, and GitHub, while the More Personal Computing segment encompasses Windows OEM licensing, Surface devices, Xbox gaming, and Bing search. Microsoft's strong performance in its various segments and its focus on AI transformation have garnered positive attention from analysts.

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