TLDR
- Microsoft faces competition from Amazon and Google for enterprise AI dominance but remains best-positioned to capture the largest market share.
- Wedbush analyst Daniel Ives predicts Microsoft’s Copilot could generate $25 billion in incremental revenue for FY26, which Wall Street has not yet priced into the stock.
- Microsoft plans $120 billion in annual AI infrastructure spending, with FY1Q26 capex guidance at $30 billion.
- TD Cowen forecasts Azure growth at 37% in constant currency for Q1, with potential for a beat pushing growth to 40%.
- Both Wedbush and TD Cowen maintain Buy ratings with price targets of $625 and $640 respectively, suggesting approximately 20% upside potential.
Microsoft reports its FY1Q26 earnings on October 29. Two major firms have weighed in with optimistic outlooks ahead of the release.
Wedbush analyst Daniel Ives maintains his Buy rating with a $625 price target. TD Cowen also reiterates its Buy rating with a $640 price target.
Both analysts see Microsoft pulling ahead in the enterprise AI race against Amazon and Google. The competition centers on capturing hyper-scale AI market share.
Ives says Microsoft’s Azure platform offers the strongest value proposition among the three competitors. He expects FY26 to be “the true inflection year of AI growth” for the company.
The Copilot initiative represents a major revenue driver that Wall Street has overlooked, according to Ives. He estimates it could add $25 billion in incremental revenue for FY26.
Current Street projections show 37% Azure growth. Ives considers this estimate conservative given multiple growth drivers.
Cloud migration from on-premises systems continues accelerating. Cloud-native applications are expanding and AI workloads are surging.
AI Infrastructure Investment Ramps Up
Microsoft is guiding for $30 billion in capex for FY1Q26. That translates to an annualized pace of roughly $120 billion.
The investment level shows Microsoft’s commitment to expanding data center capacity. The company aims to stay ahead of constraints as AI demand grows.
Ives projects over 70% of Microsoft’s install base will use AI functionality across enterprise and commercial landscapes within three years. Large-scale enterprise AI deployments are seeing “accelerated deal conversions” across multiple sectors.
TD Cowen’s research shows increased Azure data center activity over the past month. This points to strong AI demand signals for medium-term growth.
The firm projects Intelligent Cloud revenue growth of 25% in constant currency for Q1. Street estimates sit at 24.5%.
TD Cowen forecasts Productivity and Business Processes growth of 12% versus Street’s 11%. More Personal Computing is expected at -3% compared to Street’s -4.5%.
Q1 Earnings Expectations
TD Cowen models Azure growth at 37% in constant currency, matching consensus. However, the firm suggests a beat of 2% or greater is possible.
A 3% beat would push Azure growth to 40%. That would mark another quarter of acceleration for the cloud business.
For total Q1 performance, TD Cowen projects revenue of $80.9 billion and earnings per share of $3.83. Street estimates stand at $80.1 billion and $3.80 respectively.
The firm expects upward revisions following the earnings report. Microsoft’s stock currently trades near its 52-week high of $555.45.
All 34 analysts covering Microsoft rate it a Strong Buy. The average price target sits at $627.98, suggesting approximately 21% upside potential.
Ives ranks among the top 4% of Street analysts. He argues the market has yet to price in the next wave of cloud and AI growth for Microsoft.
The company maintains a $3.9 trillion market cap. It trades at a P/E ratio of 38.31 with revenue growth of 14.93% over the last twelve months.
Microsoft’s financial health score rates as “GREAT” with strong profitability metrics. Analyst price targets range from $483 to $710.
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