Evercore: The "Great Beauty Act" will enhance cash flow for Microsoft and Oracle, maintaining an "Outperform" rating

According to the Zhitong Finance APP, Evercore ISI released a research report indicating that software companies such as Microsoft (MSFT.US) and Oracle (ORCL.US) are expected to benefit from certain provisions of President Trump's "Great American Plan," resulting in a significant increase in free cash flow. Based on this, the firm maintains a "Outperform" rating for Microsoft, raising the target price from $500 to $515; similarly, Oracle, which also received an "Outperform" rating, has its target price raised from $180 to $215.

The Evercore analyst team, led by Kirk Materne, pointed out: "Thanks to the optimized tax treatment of R&D and capital expenditures, this plan may bring implicit free cash flow benefits to profitable software companies."

Evercore's analysis shows that companies with high R&D intensity and capital expenditure levels, and currently bearing substantial cash tax burdens, will benefit the most. "It is estimated that Microsoft's free cash flow could increase by $11 billion (equivalent to $1.5 per share), while Oracle is expected to increase by $3.3 billion (equivalent to $1.12 per share).

Materne added: "Software companies that pay cash taxes will benefit on average by about 9%, mainly due to more favorable R&D tax policies... It should be noted that these are tax accounting changes rather than financial accounting adjustments, primarily based on the early realization of R&D tax credits and bonus depreciation policies."

The plan includes the restoration of full deductibility for domestic R&D expenses and the reimplementation of 100% bonus depreciation for qualified capital expenditures placed in service between 2025 and 2029.

Evercore emphasized: "The net effect is equivalent to an additional 80% cash tax savings on R&D expenditures in 2025. Regarding capital expenditures, the bonus depreciation policy, which has been gradually reduced since 2022, will be restored—enterprises will be able to deduct 100% of capital expenditures in the first year in 2025, rather than the original 40% immediate deduction plus 60% asset cycle allocation."

Microsoft and Oracle are the biggest beneficiaries due to their massive capital expenditures. Evercore estimates that the capital expenditures of the two companies will reach $69.7 billion and $23.6 billion respectively in 2025, primarily directed towards artificial intelligence and data center construction.

The broader impact is that as companies across various industries generally enjoy these policy benefits, Evercore expects the entire technology sector, especially the artificial intelligence industry, to receive more investment inflows