Tech giant Microsoft (NASDAQ: MSFT) gained in morning trading on Friday after top-rated UBS analyst Karl Keirstead upgraded the stock to a Buy from a Hold and raised the price target to $400 from $345, implying an upside potential of 16.7% at current levels.
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The analyst noted that enterprise spending on cloud has stabilized for both Azure and Amazon’s (AMZN) AWS after a substantial deceleration over the past year.
Keirstead commented, “The current CY24E FCF [free cash flow] multiple of 38x is at a premium to the broader peer group at ~30x, but in our view Microsoft shares deserve a higher premium given the company’s direct and material exposure to the emerging AI opportunity and the fact that CY24 might be an unusually elevated period of capex intensity, depressing [free cash flow].”
The analyst is upbeat about MSFT’s opportunity in artificial intelligence (AI) which could lead to Azure’s revenues growing at a faster clip due to more AI workloads and better monetization of Microsoft 365 Copilot. The buzz around AI has resulted in Microsoft shares shooting up by more than 40% year-to-date.
Overall analysts remain bullish about MSFT stock with a Strong Buy consensus rating based on 31 Buys, three Holds and one Sell.