Deutsche Bank reduced its price target on Microsoft (NASDAQ:MSFT) to $575.00 from $630.00 on Thursday but left its Buy recommendation unchanged. The revised target remains well above Microsoft’s current share price of $481.63, which trades at a P/E ratio of 34.12 according to InvestingPro data.
The change comes after Microsoft released fiscal second-quarter results that Deutsche Bank analyst Brad Zelnick called "solid" but which, in the bank’s view, did not meet "more lofty market expectations" for Azure cloud expansion. Azure recorded 38% year-over-year growth on a constant currency basis, a pace the bank said was shy of an assumed market expectation of better than 39%.
Microsoft’s broader financials in the last twelve months include total revenue of $293.81 billion, representing 15.59% growth. For the company’s fiscal second quarter specifically, revenue was reported at $81 billion, a 17% year-over-year increase that topped consensus estimates by roughly 1%. Non-GAAP earnings per share for the quarter were $4.41, a 23% increase year-over-year and about 5% ahead of analyst expectations.
Deutsche Bank noted a shift in how Microsoft is allocating GPU capacity. The bank said management is prioritizing GPUs to support AI use within first-party applications and research and development, rather than directing the incremental GPU supply primarily to Azure. That strategy aligns with the company’s pursuit of what the bank described as "higher margin, recurring software opportunities." Microsoft management indicated that Azure growth would have surpassed 40% if all incremental GPU capacity had been routed to the cloud service.
Despite the downgrade to its target price, Deutsche Bank emphasized that Azure continues to expand "well above the market" and that Microsoft is guiding Azure to maintain 37% to 38% growth in the fiscal third quarter. The bank projected that this growth rate will persist for several additional quarters based on its updated estimates.
Valuation-wise, Deutsche Bank’s $575 target implies roughly 28 times the bank’s updated calendar year 2027 non-GAAP earnings per share estimate for Microsoft, a figure the bank says reflects its revised forecasts and updated views on the company and market.
Other sell-side firms also adjusted their Microsoft price targets following the quarter. Scotiabank lowered its target to $600, citing Azure’s results that fell short of buy-side expectations for the second and third fiscal quarters. BMO Capital revised its target to $575, noting that Azure’s 38% constant-currency growth slightly missed market hopes. Goldman Sachs cut its target to $600 and attributed the move to capital expenditure concerns while keeping a Buy rating. Oppenheimer retained a $630 price target, signaling a more constructive perspective despite Azure’s deceleration, and RBC Capital maintained an Outperform rating with a $640 target, acknowledging the quarter as solid but short of some market expectations.
In aggregate, the quarter delivered stronger-than-expected revenue and non-GAAP EPS on a year-over-year basis, while cloud growth metrics—specifically for Azure—prompted several analysts to reassess their near-term expectations and adjust price targets. Deutsche Bank’s action reflects a narrower view of Azure’s near-term trajectory and a recognition of Microsoft’s strategic choice to prioritize AI-related GPU allocation toward higher-margin software and internal initiatives rather than allocate all incremental capacity to Azure.