TLDR
- Baird starts Microsoft with Outperform rating and $600 price target, seeing continued double-digit growth from AI and cloud expansion.
- First quarter fiscal 2026 revenue jumped 18% to $77.7 billion, driven by Azure’s 40% year-over-year growth.
- Cloud business now makes up 60% of total revenue, expanding 25% in constant currency terms.
- Operating margin hit 49% while free cash flow margin reached 33% despite increased AI infrastructure spending.
- Wall Street consensus remains Strong Buy with average price target of $633.14, implying 26% upside potential.
Baird launched coverage of Microsoft with an Outperform rating and a $600 price target. The firm sees the software giant maintaining strong growth through its expanding AI and cloud operations.
Analyst William Power describes Microsoft as a frontrunner in artificial intelligence. The company’s partnership with OpenAI and its own infrastructure create a comprehensive AI platform for businesses and consumers.
Microsoft delivered solid first quarter results for fiscal 2026. Revenue climbed 18% to $77.7 billion, beating expectations across multiple segments.
Azure drove much of the growth with a 40% year-over-year increase. The cloud platform benefits from surging demand for AI computing power and enterprise digital transformation.
The cloud segment now generates roughly 60% of Microsoft’s total revenue. This business expanded 25% in constant currency during the quarter.
Copilot has attracted 150 million monthly active users. The AI assistant continues gaining traction as Microsoft embeds the technology across its product suite.
Core Business Lines Show Momentum
Microsoft 365, LinkedIn, and Dynamics collectively grew 17% in the quarter. These applications form the backbone of Microsoft’s enterprise and productivity offerings.
The company maintains impressive profitability metrics. Operating margin reached 49% in the latest quarter, while free cash flow margin hit 33%.
Power expects Microsoft to generate $74 billion in free cash flow for fiscal 2026. This projection accounts for rising capital expenditures as the company builds out AI infrastructure.
Capital Spending Ramps Up for AI
Microsoft plans to increase capex from $88 billion in fiscal 2025 to $143 billion in fiscal 2026. The investment targets data centers and computing resources needed to support AI workloads.
Power views the spending as necessary to capture growing AI demand. The company’s scale allows it to invest aggressively while maintaining strong cash generation.
Microsoft shares trade at approximately 29 times Baird’s 2026 adjusted earnings estimate. The valuation sits at a premium to the broader market but below recent peaks.
The analyst believes the multiple is warranted given Microsoft’s growth trajectory. Double-digit revenue expansion combined with high margins should support the current valuation.
Microsoft stock has gained 19.4% year-to-date. Shares dipped 2.1% over the past month as investors reassess AI stock valuations across the sector.
Power acknowledges speculation in AI-related stocks but doesn’t see Microsoft’s valuation as excessive. The growth outlook justifies current price levels in his view.
Wall Street analysts overwhelmingly favor Microsoft stock. The consensus rating is Strong Buy based on 34 Buy recommendations with no Hold or Sell ratings.
The average analyst price target sits at $633.14, suggesting 26% upside from current trading levels.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
