Share prices of Microsoft (MSFT -1.00%) jumped 47% over the last 12 months. Even with all that growth, at least one analyst sees more upside.
Jefferies analyst Brent Thill recently issued an updated report that maintained a buy rating on the shares but raised the price target from $465 to $550. That represents an upside of nearly 30% over the next 12 months or so given the current stock price.
Is Microsoft stock a buy?
The analyst expects Microsoft to capitalize on interest in generative artificial intelligence (AI). Microsoft is one of the leading cloud providers, second only to Amazon, positioning it to benefit from growing spending on AI in the enterprise space.
Revenue from Microsoft Azure and other cloud services grew 30% year over year in the December-ending quarter. AI services drove six percentage points of growth, an acceleration over the three points of growth in the previous quarter.
Microsoft's leadership in software and cloud services provides a visible path to launch and make money from AI. However, valuation matters in determining the future return of a stock.
Analysts currently expect the company's earnings to reach $15.63 by fiscal 2026. If the stock is still trading at a forward price-to-earnings ratio of 36, the stock would trade at $562 in the next two years.
Either Microsoft will have to significantly beat Wall Street's estimates, or the stock will have to trade at a higher valuation to hit the analyst's price target within the next year. Investors should do fine with the stock over the long term, but I wouldn't buy shares right now expecting huge gains in the near term.
