Microsoft(US:MSFT) GF SECURITIES·2026-02-04 11:25Investment Rating - The report assigns a "Buy" rating to Microsoft with a current price of $411.21 and a fair value of $480.30 [4]. Core Insights - The report highlights that Azure's revenue growth is slowing down, primarily due to AI load capacity limitations. Despite this, Microsoft's overall revenue and net profit exceeded expectations, with a revenue of $81.273 billion for FY26Q2, representing a year-on-year growth of 16.7% [14][15]. - The report emphasizes the importance of AI investment returns, noting that while Azure's revenue growth is projected to slow, Microsoft's strong cash flow can cover capital expenditures, and operational efficiencies may offset some depreciation pressures [66]. Financial Forecasts - Revenue projections for Microsoft are as follows: - FY2024A: $245.122 billion - FY2025A: $281.724 billion - FY2026E: $329.731 billion - FY2027E: $392.980 billion - FY2028E: $464.365 billion - The expected growth rates are 16%, 15%, 17%, 19%, and 18% respectively [2]. - EBITDA and net profit forecasts for FY2026E are $183.829 billion and $123.635 billion respectively, with corresponding growth rates of 21% [2]. - Earnings per share (EPS) is projected to be $16.65 for FY2026E, with a price-to-earnings (P/E) ratio of 25 [2]. Azure Performance - Azure's revenue for FY26Q2 was $32.907 billion, showing a year-on-year growth of 28.8%. However, the growth rate has slowed compared to previous quarters, with guidance for FY26Q3 indicating a growth rate of 37-38% [17][20]. - The report notes that commercial RPO (Remaining Performance Obligations) grew significantly, with a 110% year-on-year increase to $625 billion, largely driven by OpenAI [17]. Capital Expenditure - Microsoft's capital expenditure for FY26Q2 reached $37.5 billion, a 65.9% increase year-on-year, exceeding expectations. Approximately two-thirds of this expenditure is allocated to short-term assets like GPUs and CPUs [26][27]. Business Segments - Microsoft's business is divided into three main segments: - Productivity and Business Processes - Intelligent Cloud - More Personal Computing - The Intelligent Cloud segment is highlighted as the fastest-growing, driven by Azure and other cloud services [45][46]. Long-term Outlook - The report suggests that AI will continue to drive demand for cloud services, with Azure's revenue growth expected to accelerate due to AI applications. However, there are concerns about the sustainability of this growth given the current market focus on AI investment returns [66].