Bernstein is sticking with its Microsoft (NASDAQ:MSFT) rating while lifting its price target, arguing the company is taking a measured approach to capacity buildout despite strong demand signals.
The firm reiterated Microsoft at Outperform and raised its price target to $660 per share from $647, saying Microsoft is taking a “surprisingly measured approach” to building capacity given demand signals and its ability to pivot facilities to meet demand.
Bernstein wrote: “Simply stated Microsoft is not building too fast, but rather taking a surprisingly measured approach given the demand signals they are receiving and their ability to easily pivot facilities to meet demand,” per CNBC.
AI Capex Surges to New Heights
This disciplined approach comes amid a broader surge in AI-related capital expenditures. U.S. hyperscalers are projected to spend about $916 billion on AI capex over the next year, with expectations to reach nearly $1.2 trillion the following year. This spending spree is set to account for approximately 3.1% of U.S. GDP by 2027, tripling the investment levels seen during the 1990s telecom boom.
Concerns Over AI Investment Strategy
However, not everyone views this spending positively. In a Friday note, Aswath Damodaran expressed concerns that Microsoft, along with Amazon, Meta, and Google, is “collectively overinvesting” in AI.
Damodaran, known as the “Dean of Valuation,” argues that these tech giants are betting on AI without a clear business model, likening their approach more to gambling than investing.
Technical Analysis
Microsoft is on a 3-day winning streak, adding about $67.42 billion in market cap over approximately three sessions. The stock is significantly outperforming the S&P 500 with a 1-month gain of 32.19% compared to the SPY’s 2.46% rise. Additionally, Microsoft’s RSI(14) stands at 79.67, indicating overbought conditions.
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