Microsoft's AI monetization engine fully operational! Q4 perfect report ignites stock price, Wall Street exclaims growth curve underestimated

According to the Zhitong Finance APP, on Thursday, Microsoft (MSFT.US) announced better-than-expected fourth-quarter financial results and performance guidance. This perfect report not only gained market recognition but also received unanimous praise from Wall Street analysts.

After the earnings report was released, the tech giant's stock price surged nearly 7% during Thursday's trading session, ultimately closing up nearly 4%. As of Thursday's close, the company's stock price has risen over 27% year-to-date.

Wedbush raised Microsoft's target stock price from $600 to $625 and maintained an "Outperform" rating to reflect its "remarkable growth momentum in cloud services and artificial intelligence (AI) business."

The analyst team led by Daniel Ives pointed out: "This quarter's performance has delighted Microsoft bulls, with a significant rebound in Azure cloud service growth, strong momentum in the AI revolution, and an increasing number of enterprises doubling down on this strategic area, with all metrics far exceeding market expectations." Analysts expect that by fiscal year 2026, the AI business is expected to bring approximately $25 billion in incremental revenue to the company. Historical data shows that in recent years, for every $100 invested by enterprises in Microsoft Azure cloud services, an additional $50 will be allocated for AI services in the following years.

"Microsoft's performance this quarter is nothing short of perfect," Ives and his team stated, "Cloud services and AI technology are driving profound transformations across industries, and the company continues to occupy a central position in the AI revolution. However, we believe that Microsoft's AI monetization process is just beginning, and as more enterprises accelerate their AI collaboration with Microsoft, the growth potential for fiscal year 2026 remains underestimated by the market."

Analysts specifically noted that Azure revenue grew by 39% year-over-year (far exceeding market expectations of 34% and the benchmark of 36%), with total revenue surpassing $75 billion (a year-over-year increase of 34%), becoming a key indicator of AI contribution. All workloads achieved comprehensive growth, confirming that AI technology is reshaping the development trajectory of Microsoft's cloud business.

Looking ahead, although it is expected that the first half of fiscal year 2026 will face computing power limitations, Microsoft still provided a robust annual outlook. Analysts emphasized that it is evident that fiscal year 2026 will be a true turning point for Microsoft's AI business growth.

Analysts expect that the revenue of the "Intelligent Cloud" segment in fiscal year 2026 is expected to reach $30.1 billion to $30.4 billion (Wall Street's expectation is $29.42 billion); at fixed exchange rates, Azure's growth rate is expected to approach 37% (Wall Street's expectation is 34%).

The Ives team revealed that Microsoft is fully promoting the integrated development strategy of cloud services and AI. The company plans to invest over $30 billion in capital expenditures in the first quarter of fiscal year 2026, which translates to an annual capital expenditure of $120 billion. This strategic layout focuses on expanding cloud infrastructure and enhancing data center capacity to capture the continuously strong market demand.

Goldman Sachs reiterated its "Buy" rating on Microsoft and raised its target price from $550 to $630.

The analyst team led by Kash Rangan pointed out: "We are increasingly confident that AI-driven growth will continue to help Microsoft expand its market share across various business areas. This quarter's performance confirms our view—AI technology is permeating the entire product stack, and the ripple effect of Microsoft's leading position in GPU computing is driving demand growth for its high-margin product suite It is worth mentioning that these products cover all levels of the technology stack.

Analysts believe that in the new era dominated by intelligent agents, as AI workloads expand rapidly, Microsoft will fully benefit from the growth in storage, database, and application usage (including revenue sharing with OpenAI).

The Rangan team emphasized: "Referring to the development trajectory of the previous cloud computing cycle, as the scale of high-margin AI inference workloads expands, and Microsoft continues to guide customers to use its high-margin platforms and applications through cross-selling, the company's gross margin and profit growth will regain an accelerated trend."

KeyBanc Capital upgraded Microsoft's rating from "Hold" to "Overweight," with a target price set at $630.

Analyst Jackson Ader's team admitted that their downgrade in April was due to concerns about capital expenditures and depreciation expenses eroding gross margins, as well as market disputes over AI investment returns, coupled with doubts about Microsoft's determination and ability to maintain profits through ongoing layoffs. Additionally, the macroeconomic concerns reflected in the firm's spring survey were also believed to have a more significant impact on Microsoft compared to its peers.

However, data shows that Azure's business growth rate, calculated at constant exchange rates, increased by 8 percentage points in the second half of the year: from 31% in January to 35% in March, further accelerating to 39% by the end of the fiscal year. The strong performance in the past two quarters has temporarily quelled the aforementioned disputes.

The Ader team added that Azure exceeded guidance by approximately $500 million and $700 million in the last two quarters, which is equivalent to pulling the market value of Monday.com (MNDY.US) out from the couch cushions. "Such an unexpected performance makes us believe that the market will not engage in excessive debate over Azure's support costs for the rest of the year," they stated.

The Ader team also pointed out that the earnings call did not mention significant macro headwinds, and "since our concerns about the need to cut operating expenses to maintain margins, Microsoft has laid off over 10,000 employees." "We previously stated that while maintaining a 'Hold' rating, we might not be able to withstand several more quarters of significant earnings surprises, and now, we can neither withstand nor adhere to the logic behind this rating," they added