TD Cowen on Microsoft
TD analyst Derrick Wood said the following on $MSFT today:
Datacenter capacity growth supports our estimated 35% Azure revenue CAGR through FY31. We model capacity rising from ~11.5 GW in FY26 to ~36.6 GW in FY31, adding about 16 GW of GPU capacity and 9 GW of CPU capacity.
We think Azure revenue reaches $461B as AI becomes most of the business. We forecast Azure revenue increasing from $102B in FY26 to $461B in FY31. AI revenue is expected to grow at a 60% CAGR to $284B, lifting its share of Azure revenue from 27% to 62%.
Our GPU monetization assumptions leave room for upside. Annualized revenue per new GPU GW rises in our model from about $14B to $22.5B.
We expect Capex rises but free cash flow remains positive. Capex increases from $145B in FY26 to $333B in FY31. Our model shows FCF margin troughing at 7% in FY27 and recovering to ~25% in FY31 as growth outpaces incremental spending. Execution and compute allocation remain key risks. Power and hardware constraints, permitting delays, changes to the OpenAI partnership, and greater investment in frontier models could affect capacity timing, Azure growth, and capex. The model assumes about 70% of GPU capacity serves Azure.” TD Cowen reiterates Buy with a $625 price target.
Position: TheStreet Pro is long MSFT
