It has been a whirlwind week for companies in the AI space, with more developments just around the river bend with Microsoft (NASDAQ:MSFT) reporting its Q2 FY2025 numbers after the market closes today.
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Investors will be curious to understand how company management relates to the recent DeepSeek revelations on the upcoming earnings call, especially given MSFT’s plan to invest $80 billion in AI-enabled data centers around the world in FY 2025.
These massive capex outlays have been a bit of a drag on MSFT shares over the trailing few months. Though the company stock has risen some 10% over the past year, this pales in comparison to the massive growth that some of MSFT’s “magnificent” peers have enjoyed over the same timeframe.
Investor Yuval Rotem believes that a shift is coming, however, with Azure, Copilot, and other growth drivers on the cusp of propelling share prices up-and-away.
“With Azure acceleration approaching, consistent results from all other business lines, and management’s extreme focus on efficiency, I expect 2025 will be a better-than-expected year for Microsoft,” Rotem predicts.
In addition to the growth of Azure, increasing Copilot usage and other sources of surging revenue such as LinkedIn are among the reasons for the investor’s optimism. These could help MSFT outperform analyst expectations of 13.6% revenue growth, according to Rotem, who is predicting revenues closer to 15%.
Regarding AI, the investor expands that Microsoft is not simply peddling AI as a product, but that it is a component of an improving suite of services.
“They sell an entire solution for businesses to adopt AI, which is where the value lies, and not the LLM itself,” notes Rotem, adding that “Microsoft is probably best positioned to push those AI-based products that fuel productivity, which is exactly what it’s doing with its Copilot stack.”
The investor therefore expects worries about overblown capex expenditures to ease up going forward, as Copilot and other AI-supported products deliver “impressive numbers.” Rotem does caution, however, that there is a possibility the about-to-be reported quarter could be less strong than the reporting period that follows.
“I now believe the market is underappreciating Microsoft, right when things are set to inflect,” concludes Rotem, who is maintaining a Buy rating for MSFT. (To watch Rotem’s track record, click here)
Wall Street certainly seems to agree that Microsoft is well-situated for the coming year. With 27 Buy and 3 Hold ratings, MSFT holds a Strong Buy consensus rating. Its 12-month average price target of $512.77 contains an upside of ~15%. (See MSFT stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
