BofA Lifts Microsoft EPS, Keeps $500 Target
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- Microsoft reported Q3 revenue of $82.9 billion (up 18%), with revenue growth of 15% and EPS of $4.27 beating Wall Street consensus of 13.3% and $4.04, respectively.
- Microsoft stock fell 4.6% to near $405 after the report and is down ~16% YTD, with BofA citing elevated capital expenditures as the likely drag on free cash flow.
- Azure revenue grew 39% in constant currency, beating the Wall Street consensus estimate of 38.2%, per BofA's research note.
- Microsoft 365 Copilot added 5 million paid seats in the quarter, reaching 20 million total — 250% YoY growth, the fastest pace since launch, per CEO Satya Nadella.
- Bank of America analyst Tal Liani raised Microsoft EPS estimates to $17.38 (2026), $19.19 (2027), and $22.36 (2028), reiterated a buy rating, and kept a $500 price target.
- Microsoft's 2026 capex guidance of approximately $190 billion is $37 billion above Wall Street expectations, with CFO Amy Hood noting ~$25 billion stems from higher component pricing.
- BofA estimates hyperscaler capex at over $800 billion in 2026, projecting a path past $1 trillion by 2027, as the broader peer group collectively raised capex by $50 billion.
Why it matters: The gap between Microsoft's operational beat — Azure up 39%, Copilot seats up 250% YoY — and a 4.6% stock drop reveals what investors actually care about: the $190 billion 2026 capex guide landed $37 billion above Wall Street expectations. BofA still sees the sector-wide hyperscaler capex surge topping $1 trillion by 2027, meaning Microsoft's $500 target hinges on whether that spending converts into sustained revenue growth.
