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Bank of America raised its earnings forecast for Microsoft by 1% from its expected third-quarter revenue of $60.5 billion and predicted the stock would rise 16.6%.
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The bank expects the tech giant to deliver strong year-over-year growth of 11%, supported by the strength of Azure and M365.
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However, BofA believes Microsoft’s valuation will remain stable due to the booming AI market, which is expected to reach $944 billion by 2027.
Wall Street has been waiting for Big Tech’s earnings results for signs that the artificial intelligence revolution is well underway, and Microsoft’s first-quarter results next week could signal that development.
Bank of America said the tech giant’s April 25 earnings report was positive, with the bank raising its profit forecast by 1%, mainly due to strong performance in its Azure and Microsoft 365 divisions. The bank maintained its $480 price target, indicating a potential upside of nearly 17% from Thursday’s levels.
BofA strategists Brad Sills and Adam Berger said in a note Thursday that the bank sees the 11% year-over-year growth “driven by continued strength in Azure and M365.”
The bank also predicts that Microsoft’s next growth spurt will likely hinge on major advances in AI-related products, including a rapid increase in M365 Copilot users and expansion of commercial office ASPs.
”[W]The next catalyst for Microsoft stock will be as key AI-related product cycles gain momentum through incremental growth metrics such as M365 Copilot users and acceleration in commercial office ASPs (from current 6% to 7% levels). I believe this will prove that there is. ” the analysts wrote.
Breaking this down, BofA expects the sector to grow 11.5% year-over-year, with revenue soaring to $19.5 billion thanks to commercial office growth.
Despite trading at 37 times projected free cash flow in 2025, Microsoft’s valuation is driven by the rapid growth of the AI market, which analysts expect to grow to $944 billion by 2027. The bank expects it to remain stable.
Microsoft stock was trading at $407.10 as of 1:20 p.m. ET Thursday, down about 1% on the day.
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