AI revenue growth has accelerated, with an annual run rate surpassing $37 billion and strong gains in Intelligent Cloud and Azure. Despite these results, the stock is down year to date, driven by concerns about the return on capital. Capital expenditures rose sharply, and OpenAI investment losses widened significantly. More Personal Computing declined slightly. Analyst targets imply meaningful upside, with consensus around $560.63 and a range of internal base, bull, and bear outcomes. A higher price target would require additional valuation expansion beyond the base-case multiple, alongside continued earnings growth.
"“Our AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year.”"
"Capital expenditures hit $30.876 billion in the most recent quarter, up 84.39% year over year, and the market is questioning AI return on capital. OpenAI investment losses widened to $3.1 billion in Q1 FY2026 versus $523 million a year earlier. More Personal Computing was down 1%."
"The Street consensus target sits at $560.63, backed by 9 Strong Buy, 42 Buy, and 3 Hold ratings, with zero sells. Our internal model lands at a 2028 base case of $526.95, a 25.15% return with high confidence (90%), with a bull case of $602.99 and bear case of $465.06."
"Reaching $625 from today's price of $421.06 would require a gain of 48.4%. With forward EPS of $18.89, a price of $625 implies a forward P/E of 33x. Our base case of $526.95 already implies 26x, meaning the bold target needs roughly 7x of additional multiple exp"
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