Investing.com — Bernstein reiterated an Outperform rating on Microsoft and raised its price target to $660 from $647 in a note on Monday, pushing back on a key part of the bear case that the company is overbuilding AI capacity.
Analyst Mark Moerdler told investors that one element of the bear thesis has been that Microsoft “is massively spending cash to build AI capacity that will far outstrip demand.”
He believes the latest quarter eased that fear incrementally, but questions persist. The firm’s analysis is said to show Microsoft has added data center square footage more slowly than cloud revenue, and while it has increased future lease obligations, they are “spread over so many years that capacity will continue to grow at a benign rate.”
Bernstein also noted that Microsoft has purchase obligations, mostly power and cooling but also hardware, for the next 12 months but “almost nothing beyond that.”
Even if demand for AI were to stop, the firm stated that future capacity could be shifted to support the company’s existing CPU-based cloud business.
Moerdler concluded that Microsoft “is not building too fast, but rather taking a surprisingly measured approach,” with the ability to pivot facilities between CPU and GPU workloads.
With capacity coming online quickly and hardware generally available as needed, he said, “the setup for the stock is really strong.”
Bernstein added that with future data center capacity growth roughly in line with the historical growth of its cloud business, Microsoft is “not overbuilding datacenters.”
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