Microsoft’s stock experienced a 4.1% increase on Friday, and this spark came from UBS analyst Karl Kierstead, who managed to lower the price target, while still advising the investors that the stock is a buy. Kierstead lowered Microsoft’s price target to $600, which still shows a 28% gain for the upcoming 12 months that keeps investors all set to buy the stock.
AI Data Centers Steal the Spotlight
The actual main attraction of the event was Microsoft’s growing artificial intelligence infrastructure. Kierstead showed that the company was operating its enormous Fairwater AI data centers, which included their Atlanta facility that is already live, and their upcoming Wisconsin location that will open in 2026.
“Continued ramp of the big Fairwater AI data centers in both Atlanta (which went live in October) and Wisconsin (going live in 1Q26) are key near-term catalysts for Microsoft Azure growth”.
The analysts who visited the Wisconsin facility found it impressive enough to increase their revenue predictions for fiscal Q2 2026. Also, Azure has achieved successful operation through its cloud engines, which Wall Street appreciates because of their AI server capacity.
Azure Margins
Azure maintains its status as being Microsoft’s second largest business unit, which operates within its Intelligent Cloud sector. The Productivity and Business Processes unit of Microsoft definitely brings in very high profits as compared to the Intelligent Cloud Sector, where its operating margin is at 42% and its productivity margin is at 58%.
So, its operating margin that is at 42% may be less than 58%, but it remains quite a satisfying figure. As Azure’s steady revenue growth enables Microsoft to maintain its financial gains.
Valuation Nervousness
The market rally still hides the presence of the valuation anxiety. The optimistic view of Kierstead that he presents to others contains one significant doubt.
He showed that the software industry now experiences a wide scale “evident de-rating across the software sector” as the investors have grown cautious about investing expensive amounts on artificial intelligence projects.
Investors should understand that Microsoft will deliver 14% earnings growth for the long term, which becomes less appealing when its shares trade at 32 times price to earnings ratio.
Also, the stock trades at 43 times price-to-free cash-flow ratio, which is very expensive to buy. But the company needs to finance its major capital expenditures, which reduces its available free cash flow to 74% of its total net income.
Bottom Line
The Friday market rally of Microsoft demonstrates that investors continue to show interest in AI infrastructure because they want to see its performance even when analysts lower their financial predictions.
The company demonstrates strong cloud growth, which leads to successful data center development, but valuation issues create major problems for the organization. However, at the moment Microsoft successfully rides the AI wave, but the company also shows that even major tech companies face such issues as well.
