TD Cowen analysts reiterated an Outperform rating on Microsoft (NASDAQ:MSFT) and the price target of $455, citing continued demand for Azure and AI workloads.
“In Azure, demand trends are stabilizing, spend on new workloads is resurfacing and healthy backlog is driving confidence in growth & share gains. In AI, customer projects are early, breadth of demand is building & MSFT seems to be capitalizing on competitive advantages,” the analysts said in a note on Wednesday.
Importantly, Microsoft is witnessing a shift in customer behavior, TD Cowen noted.
Initially hesitant to allocate savings towards new workloads and premium services due to macroeconomic conditions, customers are now: “1) returning to investing in new workloads; 2) creating new AI budgets to spend on Azure; and 3) building up a stronger backlog of new projects to tackle,” they wrote.
“We get the sense this is helping to build a larger & more visible level of pipeline for Azure, giving mgmt confidence in the durability of Azure growth.”
MSFT also believes that Azure AI is not only increasing engagement with existing customers but also drawing in new ones.
In the December quarter, the tech giant reported approximately 53,000 customers using AI services, with a third new to Microsoft's platform.
This underscores the success of the company’s AI initiatives in attracting fresh customers and enhancing their infrastructure-as-a-service (IaaS) market share.
“Moreover, mgmt believes that customers are very early in their AI journey, with POCs/pilots in early ramp mode and breadth of customer interest building nicely,” TD Cowen analysts said.