Piper Sandler analysts reiterated an Overweight rating on Microsoft (NASDAQ:MSFT) shares on Monday, projecting that Microsoft Cloud revenue could reach $200 billion by the end of 2026, driven by strong capital expenditures (capex).
The investment bank highlighted that Microsoft Cloud services took 13 years to surpass the $100 billion revenue milestone from fiscal 2010 to 2023, with an aggregate capex and lease spend of over $176 billion.
Analysts said the next $100 billion in cloud revenue could be achieved in just three years, accelerating the necessary data center investments to potentially double Microsoft Cloud's revenue to over $200 billion by the end of FY2026.
"Growth investors should look beyond near-term fears of an AI overbuild with the lens of a broader cloud transformation still underway that could help sustain double-digit top-line and bottom-line growth through 2030," analysts commented.
With AI's contribution, the cloud mix could increase to 63% by FY2026, up from 53% today and 10% in FY2016.
Alongside these projections, analysts have also raised their price target on MSFT stock from $465 to $485, based on slightly higher estimates and a target price-to-earnings (P/E) ratio of 34x.
Microsoft is scheduled to announce its Q4 financial results on July 30, after the US market closes.
Analysts expect Microsoft’s Q4 2024 revenue to rise 14.5% year-over-year to $64.4 billion, up from $56.2 billion in Q4 2023. However, this would indicate a slowdown in growth compared to the 17.0% year-over-year increase seen in Q3 2024.
Earnings per share (EPS) are projected to grow by 9% from the previous year to $2.931, up from $2.69 in Q4 2023. This also represents a deceleration from the 20% year-over-year growth reported in Q3 2023.