Bank of America Analyst Upgrades Microsoft's Price Target with a Positive Outlook for 2024

Bank of America Securities analyst Brad Sills expressed confidence in Microsoft Corp (MSFT), maintaining a Buy rating and raising the stock's price target from $430 to $450. Sills forecasts a stable 1% constant currency (cc) increase in second-quarter revenue, which he predicts to be $60.9 billion, marking a year-over-year (Y/Y) growth of 17%.

Strong Performance Driving Upgrades

The upward revision in Microsoft's price target is fueled by the projected growth in cloud services like Azure and Microsoft 365 (M365), despite a downturn in PC shipments during the fourth quarter. Sills anticipates the currency impact to confer a 2% boost to second-quarter growth, exceeding the original 1% forecasted improvement for the quarter.

Key Segments Poised for Growth

Driving this optimistic outlook is the expectation of sustained momentum in Azure's growth at 26.5% cc, supported by consistent workload migrations and robust adoption of Microsoft's security solutions such as Sentinel, Purview, and Entra. The Personal Business Process (PBP) segment is anticipated to surpass revenue estimates by $450 million, hitting $18.6 billion with a Y/Y growth of 13%.

In the More Personal Computing (MPC) segment, lightweight PC demand is acknowledged as a potential damper, yet a $50 million surplus is still anticipated for the revenue target of $16.7 billion, evidencing an 18% Y/Y growth. Notably, PC growth stagnation was reported by IDC, contrasting with Microsoft's prior guidance predictions.

Outlook and Reacceleration

Sills believes Microsoft exemplifies a compelling reacceleration narrative for 2024, driven by expected increases in Average Selling Price (ASP) growth via the M365 Copilot initiative, which should propel Office growth towards the 20% mark. Furthermore, he predicts Azure's revenue growth to escalate from workloads leveraging Artificial Intelligence (AI) as the macroeconomic conditions improve.

Rising Expectations and Upgrades

To summarize, the anticipated trajectory is one of revenue growth acceleration towards high teens from a current mid-teens level, carving a promising route for Microsoft. Complementing Bank of America's optimistic stance, Exane BNP Paribas analyst Stefan Slowinski has also elevated Microsoft from Neutral to Outperform, with an ambitious price target of $471.

In recent trading, MSFT shares saw a modest uptick of 0.89%, reaching $392.96.

Microsoft, Forecast, Growth