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Microsoft Stock: Analysts Adjust Targets Ahead of Key Earnings Amid AI Expansion

As Microsoft gears up for its Q3 earnings release on April 25, the company’s shares saw a modest rise on Wednesday, reflecting the anticipation surrounding its continued dominance in artificial intelligence and cloud computing. Having recently surpassed Apple as the world’s most valuable company, Microsoft’s strategic infusions of AI across its product range have bolstered its market position.

The focal point of Microsoft’s AI ambitions is its cloud division, particularly Azure, which reported a significant revenue boost attributed to AI enhancements. Analysts expect this trend to have continued into the March-ending quarter, projecting Azure to propel Intelligent-cloud revenue to an 18.8% year-over-year increase, totaling about $26.24 billion.

Dan Ives of Wedbush anticipates a surge in AI adoption, particularly through Microsoft’s AI support program, Copilot, which is expected to drive Azure’s cloud deals even further. Ives maintains an “outperform” rating on Microsoft, with a bullish $1,000 price target.

However, amidst its AI advancements, Microsoft faces scrutiny from European regulators over its competitive stance in the AI market, particularly in relation to its partnerships and influence over AI startups like Mistral. This comes alongside examinations into the company’s strategic movements following board-level changes at OpenAI.

One of the more immediate challenges for Microsoft will be balancing its aggressive capital investment in AI against the need to maintain profit margins. The company has already signaled a significant increase in capital expenditures, which are expected to approach $16 billion for the March-ending quarter as it continues to expand its AI capabilities.

Despite these hefty investments, analysts are optimistic about Microsoft’s profitability. CFRA’s Angelo Zino predicts a modest improvement in profit margins and a significant contribution from Azure’s AI services. Zino recently increased his price target for Microsoft to $475, highlighting potential revenue boosts from AI-driven increases in average revenue per user within its Office Commercial business.

Meanwhile, Citigroup’s Tyler Radke appreciates Microsoft’s position in AI and Azure but cautions that a stronger U.S. dollar may dampen revenue growth. Radke adjusted his price target slightly to $475 earlier this month.

As the earnings date approaches, all eyes will be on Microsoft to deliver on its AI-driven growth promises and to provide insights into how it plans to manage the escalating costs associated with these ambitions. With the stock closing at $409.06 on April 24, the tech giant’s strategic maneuvers in AI and cloud computing continue to make it a critical watch for investors.