Jefferies recently released an analysis on Microsoft, emphasizing that the company’s recent pullback provides a compelling entry point for investors. Despite the stock dropping approximately 18% since the first fiscal quarter (F1Q), Microsoft has made notable commitments in artificial intelligence with $250 billion for OpenAI and $30 billion for Anthropic, which signify long-term strategic investments.
Analyst Brent Thill points out that Microsoft’s valuation, currently assessed at 23 times the earnings per share projected for calendar year 2027 (CY27 EPS), is now priced below Amazon and Google. He underscores that this lower valuation persists despite Microsoft’s superior revenue visibility and backlog, which the firm considers among the most robust in large-cap technology.
Central to Jefferies’ bullish stance is Microsoft’s record level of contractual commitments with AI organizations, which are expected to drive the largest sequential increase ever in the company’s remaining performance obligations during the second fiscal quarter. These partnerships underline unprecedented multi-year demand visibility.
Azure, Microsoft’s cloud platform, is highlighted as a critical growth lever, with Jefferies stating that its demand remains constrained by supply capacity rather than customer demand. In response, Microsoft is planning to double its data-center infrastructure over the next two years to support increased Azure usage.
Demonstrating strong execution, Microsoft has surpassed its Azure revenue guidance for three consecutive quarters. Jefferies anticipates that this growth, bolstered by new capacity investments, will likely contribute substantial upside to second-quarter and full fiscal year 2026 Azure revenue consensus estimates.
The report also notes an acceleration in AI monetization efforts, particularly through products like Copilot and Microsoft’s first-party offerings. With Azure now representing roughly 30% of Microsoft’s total revenue, consistent performance improvements could elevate the company’s overall revenue growth into the high teens percentage range.
While Jefferies acknowledges existing challenges such as capacity constraints and heavy capital expenditure, it retains a Buy rating with a share price target of $675. The firm concludes that Microsoft is positioned to generate meaningful upside for both revenue and earnings through the fiscal year 2026 horizon.