Microsoft(US:MSFT) Haitong Securities·2024-10-20 05:40Investment Rating - Outperform rating assigned to the company [1] Core Views - Microsoft is a software giant transitioning from the PC era to the cloud and AI era, with diversified revenue streams including cloud solutions, online advertising, operating systems, productivity applications, and gaming [3] - The Intelligent Cloud segment has become Microsoft's largest revenue contributor, accounting for 42.98% of total revenue in FY2024 [3] - Azure is a comprehensive cloud service platform, leading in the Gartner 2023 Magic Quadrant for Strategic Cloud Platform Services, with over 60,000 Azure AI customers as of FY24Q4, a 60% YoY increase [4] - Microsoft 365 is reshaping productivity and business processes, with recent updates to Copilot enhancing collaboration, data analysis, and automation capabilities [4] - Microsoft adjusted its FY2025 financial reporting structure to better reflect its cloud-related businesses, with Azure expected to grow 33% YoY in FY25Q1 [6] Financial Performance and Projections - Revenue is projected to grow from $245.1 billion in FY2024 to $362.7 billion in FY2027, with a CAGR of 13.6% [5][7] - Net income is expected to increase from $88.1 billion in FY2024 to $129.4 billion in FY2027, with a CAGR of 15.2% [5][7] - Gross margin is forecasted to remain stable at around 69% from FY2024 to FY2027 [5][7] - EPS is projected to grow from $11.86 in FY2024 to $17.41 in FY2027 [5][7] Segment Performance and Projections - Productivity and Business Processes segment revenue is expected to grow at a CAGR of 12.2% from FY2025 to FY2027, driven by Microsoft 365 and LinkedIn [7] - Intelligent Cloud segment revenue is projected to grow at a CAGR of 19.0% from FY2025 to FY2027, led by Azure and server products [7] - More Personal Computing segment revenue is forecasted to grow at a CAGR of 3.6% from FY2025 to FY2027, with Windows and gaming as key contributors [7] Valuation - Based on comparable companies, Microsoft is valued at a FY2025 PE range of 34-36x, with a fair value range of $447-$473 per share [7] Key Financial Metrics - ROE is expected to decline slightly from 32.8% in FY2024 to 27.1% in FY2027 [12] - Operating cash flow is projected to grow from $118.5 billion in FY2025 to $171.6 billion in FY2027 [13] - Capital expenditures are forecasted to increase from $44.5 billion in FY2025 to $60.0 billion in FY2027 [13]