Microsoft To Develop Its Own Chips For Servers, PCs – Report

Microsoft Corp. is working on in-house processor designs for use in server computers that run its cloud services, as the tech giant seeks to reduce reliance on Intel Corp.’s chip technology, Bloomberg has learnt.

Intel shares closed 6.3% lower on Friday. According to the report, the world’s largest software maker is deploying Arm Ltd. designs to develop a processor that will be used in its data centers. Additionally, Microsoft (MSFT) is exploring using another chip that would power some of its Surface line of personal computers, the Bloomberg report said.

The move is a major commitment by Microsoft to supplying itself with the most important piece of the hardware it uses and potentially bringing cost and performance advantages over off-the-shelf silicon primarily provided by Intel. With this move, Microsoft is following into the footsteps of other cloud-computing rivals such as Amazon, who are already exploring similar paths.

Representatives of Microsoft and Arm declined to comment when approached by Bloomberg on whether Microsoft is working on server and PC processors.

“Because silicon is a foundational building block for technology, we’re continuing to invest in our own capabilities in areas like design, manufacturing and tools, while also fostering and strengthening partnerships with a wide range of chip providers,” Microsoft spokesman Frank Shaw told Bloomberg.

Should Microsoft decide to develop with its own chip for PCs it would be following Apple Inc., which is moving its entire Mac line away from Intel processors.

Shares of Microsoft have gained about 38% so far this year as the tech giant continues to benefit from increased demand for remote services and the shift to cloud solutions during the coronavirus pandemic. (See Microsoft stock analysis on TipRanks)

However, the stock is up a mere 2.7% over the past month, which prompted Morgan Stanley analyst Keith Weiss to lift his price target to $260 (19%) from $249, as the analyst sees the potential for MSFT shares to get “unstuck”.

Weiss reiterated a Buy rating on MSFT calling the stock a top pick among software names. He noted that the stock has been stuck as investors have been cautious and voiced concerns that after a two-year period when all of Microsoft’s metrics were up, the past two quarters have been more mixed, which could result in another mixed print.

Meanwhile, Weiss believes that all of this has already been well incorporated into consensus estimates, leaving room for upside.

The rest of the Street firmly shares Morgan Stanley’s bullish outlook on the stock. The Strong Buy analyst consensus is based on a stellar 23 back-to-back Buy ratings. The average price target of $249.20 implies another 14% upside potential lies ahead over the coming year.

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