Microsoft jumps 2.5% to close 14 cents shy of $500

Azure Crosses $100 Billion as AI Revenue Concerns Ease

@Microsoft ($MSFT) climbed 2.5% on Thursday to close at $499.86, stopping just short of the symbolic $500 mark. The move extended a rally of roughly 25% since the company reported fiscal fourth-quarter results last week, a print that largely put to rest the market's central worry about big tech: that massive AI capital expenditure was not converting into real revenue.

The engine behind the move is Azure. Microsoft's Azure cloud business grew 43% last quarter, blowing past the company's own forecast and surpassing $100 billion in annual revenue for the first time. The result exceeded the roughly 40% growth expected by analysts and accelerated from 40% in the previous quarter. For context, Azure growth was the highest it has been since Q3 2022, when it came in at 46%.

The broader numbers were equally strong. Consolidated revenue of $90 billion was up 18% year on year, with net income increasing 31% to $35.8 billion. Microsoft 365 Copilot also reached more than 30 million paid seats, up from 20 million in the previous quarter and above analyst expectations of around 26.9 million.

Analysts Lift Targets as Capex Narrative Shifts

The results prompted a wave of analyst upgrades. Citi raised its Microsoft price target to $600 from $570, keeping a Buy rating, and called the report "a solid rebuttal to the bear case." Wells Fargo analyst Michael Turrin lifted his price objective to $650 from $625, keeping an Overweight rating after Microsoft's fiscal fourth-quarter results cleared the bar investors had been nervous about.

The guidance for the current quarter added further fuel. Management guided Q1 FY2027 Azure growth to 45% in constant currency, stronger than Q4's 43%. That forward look signals the acceleration in cloud and AI demand is not yet peaking.

Microsoft's commercial backlog, the revenue it has booked but not yet recognised, jumped 84% year on year to $678 billion, with the quarter's sequential growth coming from customers other than the big model developers. That broadening of the customer base beyond large AI labs reduces concentration risk and adds credibility to the long-term growth story.

The stock's proximity to $500 is more than a round number. Microsoft went into the print with its stock down more than 20% for the year. The rebound since the July 29 results has been sharp, and with management guiding for further acceleration, the question now is whether the $500 level becomes a floor rather than a ceiling.

Sources:
GeekWire: Microsoft Azure tops $100B in annual revenue as record AI spending cuts into cash flow
Yahoo Finance: Wells Fargo resets Microsoft stock price target
Fortune: Microsoft's cloud just hit a new milestone, Azure crosses $100 billion in annual revenue