FINWIRES · TerminalLIVE
FINWIRES

Microsoft Azure, M365 Commercial Can Sustain Acceleration in Fiscal 2027 Despite Some Risks, Oppenheimer Says

By
Microsoft Azure, M365 Commercial Can Sustain Acceleration in Fiscal 2027 Despite Some Risks, Oppenheimer Says

Microsoft's (MSFT) Azure and the M365 commercial business can sustain acceleration in fiscal 2027 despite potential risks from artificial intelligence disruption and a pull-forward of some enterprise information technology spending, Oppenheimer said Tuesday.

The brokerage attended a meeting with the tech giant's management, who struck a positive tone regarding new AI agentic capabilities driving acceleration at its Azure cloud-computing unit and M365 Copilot. Monetization of the Copilot generative AI chatbot remains strong, while the company is also expected to benefit from additional compute capacity becoming active, according to Oppenheimer.

Both Azure and M365 commercial can sustain "business acceleration" in fiscal 2027, Oppenheimer analysts Brian Schwartz and Idan Gutkind said in a note to clients Tuesday.

The brokerage raised its price target on the Microsoft stock to $570 from $515 while reiterating its outperform rating.

"On balance, there is multiple risk that AI disruption and pull-forward of some (2026 second-half) enterprise IT spending moderates Azure and M365 commercial revenue growth heading into (2027), compresses cloud margin, and/or (capital expenditure) efficiency decreases," Schwartz and Gutkind wrote.

Microsoft shares were down 1% in Tuesday afternoon trade. The stock has increased 2.8% so far this year.

Earlier this month, the company said it will transition to two reporting segments from fiscal 2027, namely Agents and Infra, and Devices and Consumer. Azure performance will be reported within the Agents and Infra segment, according to Microsoft.

"Management expects (Azure) demand, which is broadening beyond frontier labs, to exceed capacity through year-end, though (graphics processing unit) dock to-live time has improved nearly 50% over (the last 12 months)," Oppenheimer said Tuesday. "While AI investments may pressure near-term gross margin, improving utilization, prudent (operating expenditures), and growing enterprise backlog should support margin expansion as new capacity comes online."

Microsoft's E7 and Agent 365 offerings are improving visibility on AI usage, thereby assisting in cost predictability for buyers and accelerating product adoption, according to the note.

"A multi-model approach lowers AI costs and improves (return on investment) to support broader deployments, higher AI attach rates, and drive sustained (average revenue per user) growth," the analysts said. "On balance, tighter AI spending controls and/or IT budget scrutiny could restrain monetization and moderate growth."

Microsoft's management also highlighted internal efficiencies in meeting AI supply constraints, while their guidance to be free cash flow positive in fiscal 2027 reflects their confidence in sustaining profitable growth, Oppenheimer said.

"The set-up looks favorable for Microsoft to achieve and/or exceed (first-quarter) estimates," Schwartz and Gutkind said. "The enhanced transparency from the segments reclassification, along with more predictable capex spending in (fiscal 2027), should lessen concerns that Microsoft's AI investments are just generating incremental revenue rather than incremental operating income."

Earlier this month, the chief executives of Anthropic and OpenAI urged the industry to advance AI capabilities at a more measured pace, citing increasing safety risks. Microsoft holds investments in both AI firms.

Price: $496.65, Change: $-4.96, Percent Change: -0.99%

What else is happening in US Markets?

Update: Nasdaq Composite Rallies to Record as AI Trade Lifts Chipmakers
US Markets

Update: Nasdaq Composite Rallies to Record as AI Trade Lifts Chipmakers

(Updates with market moves at the end of the day, and other changes, if any.)The Nasdaq Composite reached a new high on Monday, leading a rally on Wall Street as chip-related stocks advanced ahead of President Donald Trump's meeting with Chinese leader Xi Jinping.The technology-heavy Nasdaq jumped 2.3% to a record closing high of 27,122.09. The S&P 500 jumped 1.5% to 7,764.70, while the Dow Jones Industrial Average added 0.7% to settle at 52,048.83. Among sectors, communication services led the gainers, followed by tech, while energy saw the steepest decline.Chipmaking giant Intel (INTC) was the third-best performer on the S&P 500, up 12%. Other semiconductor stocks that gained included Advanced Micro Devices (AMD), which saw its market capitalization hit the $1 trillion mark for the first time, and Qualcomm (QCOM). Nvidia (NVDA) rose 2.3%, the biggest gain on the Dow.On Sunday, US Treasury Secretary Scott Bessent said he had "successful" preliminary talks with Chinese Vice Premier He Lifeng over the weekend, ahead of Xi's expected visit to the US, according to multiple media outlets.The discussions between Bessent and Lifeng centered on artificial intelligence and trade, among other topics, CNBC reported. Talks between Trump and Xi are expected to take place Thursday.The US camp has proposed a new AI safety notification mechanism, Reuters reported.Trump said Monday that the US Department of Justice and other law enforcement agencies "will rein things in if we have to, but I will only encourage AI," in his latest remark following recent warnings on increasing safety risks tied to AI advancement."Expectations are low for any major breakthroughs or announcements (from the Trump-Xi meeting), but trade relations are always a wild card," D.A. Davidson said Monday in a report. "The two countries have a tariff escalation truce in place until November, so an extension or agreement is needed."West Texas Intermediate crude oil was down 4.7% at $95.56 a barrel in Monday late-afternoon trade, while Brent dropped 3.7% to $100.06.Trump reportedly said he would be open to meeting Iranian President Masoud Pezeshkian, who is expected to attend the upcoming United Nations General Assembly in New York.US Treasury yields were mixed, with the 10-year yield down 4.1 basis points at 4.96% while the two-year yield rose half a basis point to 4.75%.Policymakers can no longer afford to look through supply shocks that have become a regular feature of the economy, Chicago Fed President Austan Goolsbee said Monday."We need evidence that these shocks are actually fading, or it's hard to see a credible path back to 2% inflation -- and harder still to justify continuing to look through them," Goolsbee said in remarks at an event in London.In other company news, Paramount Skydance (PSKY) has agreed to settle a multistate antitrust lawsuit involving its proposed deal with Warner Bros. Discovery (WBD), multiple attorneys general said Monday in separate statements. Shares of Warner Bros. jumped nearly 11%, among the biggest gains on the S&P 500, while Paramount fell 2.9%.Novo Nordisk's (NVO) US-listed shares slumped 8% as the Danish drugmaker unveiled its long-term growth ambitions ahead of patent expirations for semaglutide, the active ingredient in its weight loss and diabetes drugs.Spot gold moved down 0.8% to $4,345.22 per troy ounce, while silver lost 0.7% to $66.65.

Dow JonesNasdaq CompositeS&P 500$AMD$INTC$NVDA$NVO$PSKY$QCOM$WBD
Paramount Settles Multistate Lawsuit Over Proposed Warner Bros. Deal
US Markets

Paramount Settles Multistate Lawsuit Over Proposed Warner Bros. Deal

Paramount Skydance (PSKY) has agreed to settle a multistate antitrust lawsuit involving its proposed acquisition of Warner Bros. Discovery (WBD), several attorneys general said Monday in separate statements.Earlier this year, a California-led coalition of 12 states sought to block the deal, alleging that the merger would lessen competition by lowering output and raising prices.Paramount announced a deal in February to buy Warner Bros. after streaming giant Netflix (NFLX) withdrew from its proposed purchase of the HBO Max owner.Paramount's proposed settlement with the states includes a five-year commitment to increase film output and a provision to spend at least $1.5 billion on domestic film production, the attorneys general of California, New Jersey, Washington, Oregon, Arizona, Colorado and New York said.A $47.5 million fund for merger-impacted workers and restrictions on cable price negotiations are also part of the deal, which is subject to court approval."Today's settlement protects workers, jobs, and Hollywood," California Attorney General Rob Bonta said in a post on X.New Jersey Attorney General Jennifer Davenport said the settlement should protect consumers from hikes to cable fees and workers from cuts to film and TV production.Washington's Nick Brown, Arizona's Kris Mayes, Oregon's Dan Rayfield, Colorado's Phil Weiser and New York's Letitia James separately endorsed the concessions secured.Paramount and Warner Bros. didn't reply to' requests for comment.Paramount has also reached a settlement with the Writers Guild of America, which had filed a case against the Warner Bros. deal, Reuters reported Monday.Earlier this month, Paramount said that it had satisfied all closing conditions under the merger agreement and that the lawsuits filed by the state attorneys general and the Writers Guild of America were the only remaining barrier to closing the deal.Shares of Warner Bros. gained nearly 11% on Monday, while Paramount's fell 2.9%."The combined company would have greater scale in content asset and production capabilities, across a range of content formats," Barrington Research Associates said in a report in August. "While the combined entity will have a substantial market share in parts of the entertainment ecosystem, it will remain a highly competitive market, particularly in streaming, where the combined company would also gain meaningful scale."

$NFLX$PSKY$WBD
Planet Fitness Growth Could Be Pressured Amid Rising High Volume, Low Price Competition, Deutsche Bank Says
US Markets

Planet Fitness Growth Could Be Pressured Amid Rising High Volume, Low Price Competition, Deutsche Bank Says

Planet Fitness' (PLNT) growth and market share in the high volume, low price fitness space could take a hit in the coming years amid a projected rise in competition from new entrants and smaller, well-established companies, Deutsche Bank said Monday.Although the fitness center operator continues to be the industry leader in terms of "sheer" size and scale, it is facing challenges from new companies, as well as smaller, well-established names in the high volume, low price -- or HVLP -- market, Deutsche Bank analyst Chris Woronka said in a note to clients."We expect this trend to accelerate which, if correct, has key implications for HVLP market share over the next several years," Woronka wrote, adding that Planet Fitness' same-store sales and net unit growth could take a hit from the projected development.The company benefits from a massive footprint and a "generally stable" franchisee operator base, but growth could become much harder if gym-goers start prioritizing better workout experiences over low prices, according to the note.HVLP fitness competitors are trying to lure members away with differentiated perks such as larger clubs, modern ambiance, connected fitness tracking and dynamic pricing models. This indicates budget-conscious gym-goers may be increasingly willing to pay a bit more for a premium experience, Deutsche Bank said.While some investors are worried that Planet Fitness could see reduced net membership growth if thrifty consumers decide to cancel their memberships, "the real risk" is that an increasing number of consumers are seeking a more premium fitness experience, Woronka said."While difficult to prove at this time, we think the early evidence is in how newer entrants to the HVLP space are building their facilities, in terms of size, offerings, and flexibility," the analyst said. "If we are correct, a long-anticipated recovery of the value-seeking customer may not be much of a benefit at all to (Planet Fitness)."The company's shares were down 4.8% in Monday late-afternoon trade, bringing its year-to-date losses to nearly 57%.Last month, Planet Fitness cut its full-year adjusted earnings outlook to reflect higher interest expense. Separately, connected fitness company Peloton (PTON) forecast fiscal 2027 revenue below Wall Street's estimates following last year's subscription price hike.Earlier this month, Morgan Stanley downgraded its rating on the Peloton stock, citing potential "structural" challenges that will likely impact its gross additions. "We believe this is a reflection of structural headwinds as consumers are shifting towards strength training and gyms," the brokerage said in a note to clients at the time.Price: $47.16, Change: $-2.33, Percent Change: -4.71%

$PLNT$PTON