Goldman Sachs analyst Kash Rangan reiterated a Buy rating on Microsoft Corp
Microsoft is among the most compelling investment opportunities in the technology industry and across sectors.
With a strong presence across all layers of the cloud stack, Microsoft is well-positioned to capitalize on several long-term secular trends.
Along with continued operating leverage, as its cloud business reaches a ~$100 billion run rate, it should drive sustainable EPS growth, leading to a potential doubling of EPS from FY22 to FY27.
In contrast, his long-term projection for the Microsoft Cloud business of nearly ~$220 billion in FY27 represents only a 20% CAGR from FY22 levels.
With the release of Microsoft 365 Copilot, Business Chat, Dynamics 365 Copilot, GitHub Copilot, Teams Premium, Azure OpenAI Services, Viva Sales, and more, Microsoft is in a unique position to transform the way software augments human productivity.
Given the importance of the data input into the underlying models of such technology, Microsoft's productivity suite, cloud services, developer tools, and other platforms create a well-rounded data hub that can solidify its competitive moat.
Furthermore, as tech as a percentage of global GDP moves from 5% to 10% (per management) driven by digitization, the analyst views this longer-term target as reasonable even relative to the enterprise IT industry which is ~$2 trillion today.
He believes the long-term secular drivers are intact for Azure and Office. The recently implemented price increase of 15% to 25% in the core Office product family and accelerating momentum toward E5 would likely play out over the next two or three years, an additional indicator of its pricing power and the strong value proposition.
Furthermore, Microsoft is an efficient capital allocator, evidenced by its successful record of acquisitions, dividends, and share purchases, which argues for a compelling total return story.
Rangan projected revenue of $233.80 billion (consensus $218.85 billion) and EPS of $10.93 (consensus $10.20) in FY24.
Price Action: MSFT shares traded higher by 0.51% at $337.79 on the last check Thursday.
