Goldman Sachs is reiterating a buy recommendation on Microsoft and reaffirming a 12-month price target of $610 following the software giant's fiscal third-quarter report, even as the stock moved lower in trading after the release.
Microsoft posted third-quarter revenue of $82.9 billion, an 18% increase from the year-ago quarter and about 2% above consensus estimates. Non-GAAP earnings per share were $4.27, up 23% year over year and roughly 5% ahead of Street expectations.
Goldman analyst Gabriela Borges described the quarter as a potential inflection point for a stock that has underperformed its peers in recent periods. The bank highlighted several elements of the report that it views as constructive for Microsofts positioning in the evolving AI and cloud landscape.
Among the positives, Microsoft provided fiscal fourth-quarter Azure guidance of 39% to 40% growth on a constant-currency basis, and management signaled modest acceleration in Azure growth in the first half of fiscal 2027. Separately, the company guided to $190 billion in capital expenditure for calendar year 2026, a figure that Goldman interprets as implying roughly $120 billion of spending in the second half of the year - a roughly 45% increase relative to the Street's $82 billion estimate.
Borges also pointed to momentum in Copilot adoption, with Microsoft reporting 20 million Copilot seats and noting this represented the fastest quarter-over-quarter net additions since the product's launch. In addition, Goldman drew attention to internal silicon efficiency improvements cited by Microsoft, including a 67% gain in GPU efficiency for transcription tasks and improvements up to 260% for image generation workloads.
"We are constructive on Microsoft's positioning in the AI ecosystem and see a catalyst-rich path in 2H," Borges wrote. "We see this quarter as a meaningful first step in reversing the stock's multi-quarter period of underperformance."
While Goldman retained its bullish stance, market reaction was muted-to-negative in the immediate aftermath of the results, with shares trading lower despite the beat on revenue and earnings. The firms view centers on the combination of cloud growth guidance, product-level adoption metrics, and efficiency gains in proprietary silicon as the principal drivers for a potential re-rating of the equity.
Key metrics from the quarter
- Revenue: $82.9 billion, +18% year over year, ~2% above consensus
- Non-GAAP EPS: $4.27, +23% year over year, ~5% above consensus
- Azure guidance: 39% to 40% constant-currency growth in fiscal Q4
- Copilot seats: 20 million, fastest quarter-over-quarter net additions since launch
- Capital expenditure guidance: $190 billion for calendar 2026 (implies ~ $120 billion in 2H)
- Internal GPU efficiency: +67% for transcription; up to +260% for image generation
Goldman views these signals as reasons to remain constructive on Microsoft, while the market's lukewarm reaction underscores lingering questions about the stock's near-term momentum.