Goldman Sachs analysts Kash Rangan and Gili Naftalovich recently released a report expressing continued optimism towards Microsoft (MSFT, Financial), despite reports of the company potentially delaying or canceling some AI data center leases. Microsoft has reportedly canceled several agreements with private data center operators, involving hundreds of megawatts of power. In response, Microsoft stated it remains committed to its over $80 billion capital expenditure plan, although it will strategically adjust or slow infrastructure development in certain areas.
Goldman Sachs highlights Microsoft's robust capabilities across all cloud stack layers—applications, platforms, and infrastructure. This positions the company to capitalize on long-term trends like generative AI, public cloud consumption, SaaS, digital transformation, AI/ML, business intelligence/analytics, and DevOps. Microsoft's strong residual performance obligations (RPO) of around $300 billion, anticipated AI revenue growth to $13 billion, and a 75% annual increase in commercial orders reflect its established position in the AI market.
Goldman Sachs reiterates a "buy" rating on Microsoft, predicting a 22.5% stock price appreciation. The firm's capital expenditure estimates for fiscal years 2025 and 2026 remain at $8.8 billion and $9.1 billion, respectively. The report underscores Microsoft's unique position as a super cloud provider with extensive commercial applications capable of leveraging the shift from infrastructure to platform and application layers to drive long-term profitability. As Microsoft's cloud business nears $100 billion in annual revenue, operational leverage is expected to continue boosting earnings per share (EPS), potentially doubling by fiscal year 2028.
