Microsoft Corp. (MSFT, Financials) is focusing on enhancing cost efficiencies across its operations and aiming for accelerated growth in its Azure cloud segment, according to an analysis by Citi.
Following a recent discussion with Microsoft's investor relations team and division finance officials, Citi analyst Tyler Radke expressed optimism in the company's second-half Azure growth prospects as capacity limitations are likely to relax.
Radke wrote in a client note, "We walked away feeling that management had good confidence in the 2H Azure reacceleration and ramping supply of capacity, which should ease current constraints."
He also underlined a persistent theme of cost minimization throughout Microsoft's activities, therefore supporting his optimistic view of continuous profits growth despite the significant costs linked with the artificial intelligence initiatives of the corporation. Radke has a "Buy" rating for Microsoft and targets $497.
Following 32% to 33% increase in the first half, the analyst also underlined Microsoft's assumption that Azure will enjoy faster expansion in the second half of the fiscal year. Increased third-party capacity moving from the second to the third quarters and Microsoft's own cloud infrastructure account for this expected rise.
Radke added, "Although there are important caveats, the supply increase may be sufficient to satisfy current demand by Q4 (and could reduce third-party spend over time)."
He pointed out that the need for artificial intelligence is creating a "halo effect" by drawing users to the platform, hence sustaining demand for fundamental Azure services—which often have better margins.
Further revelations from the Citi analysis point to efficiency prospects in Microsoft's gaming division, which Radke found to have some of the greatest immediate possibilities. Furthermore, the AI-powered application Copilot helps increase efficiency and productivity across Microsoft. Microsoft aims to earn $25 billion in income in its security segment.
