Piper Sandler remains bullish on Microsoft (NASDAQ:MSFT), maintaining an Overweight rating despite an 11% decline in shares over the past three months. The firm believes Microsoft is well-positioned to capitalize on its broad product offerings, a $13 billion AI business growing at triple digits, and over $100 billion in annual operating cash flows.
Investor discussions last week with Microsoft’s investor relations team focused on three key areas: Azure’s growth trajectory, capital expenditure priorities, and the impact of Project Stargate on its partnership with OpenAI. Azure’s AI workloads continue to surge, growing 157% year-over-year last quarter, with large enterprises like Alaska Airlines, Toyota (NYSE:TM), and Walmart (NYSE:WMT) increasingly moving AI projects into production. Piper Sandler noted that Microsoft has adjusted its partner incentives to balance both AI and non-AI workloads, addressing concerns that previous incentives were too AI-centric.
Microsoft’s $80 billion in capital expenditure and lease spending this year is tightly aligned with short-term demand signals but aims to build a “global, fungible, and flexible” data center fleet. This infrastructure will serve long-term inferencing needs, with the investment tied to the company’s $298 billion contracted backlog.
Piper Sandler downplayed concerns about Project Stargate’s impact on Microsoft’s relationship with OpenAI. Despite the $100 billion project, Microsoft retains API exclusivity, perpetual rights to IP, and right of first refusal on infrastructure needs. OpenAI’s increasing demand for GPU capacity makes Stargate a strategic advantage, complementing Microsoft’s role in AI training and inference.
Piper Sandler sees the recent weakness in Microsoft’s stock as a buying opportunity, predicting that the company’s diversified business and strong AI growth will drive long-term value for investors. "We maintain a positive stance on MSFT based on a broad product offering, healthy commercial RPO that grew 34% y/y, strong operating cash flows of $100B+ annually, and an at-scale $13B+ AI business growing triple-digits,” analyst said
