Microsoft receives a $675 target price, Jefferies is optimistic about its valuation and allocation potential

Jefferies, a leading investment research firm, recently published its latest analysis report, giving Microsoft a “Buy” rating and a target price of $675. In the current environment of divergence within the tech sector, this optimistic rating is particularly noteworthy—although Microsoft’s stock has faced pressure since the first quarter of this year, the research team believes this presents a relatively ideal entry point for long-term investors.

Opportunities Behind the Price Adjustment

Over the past few months, influenced by shifts in market style, Microsoft’s stock has fallen by 18%, and its valuation multiples have been compressed by 23%. As a result, many investors have shifted their focus to other sectors like semiconductors. However, Jefferies views this market reaction as excessive. Despite Microsoft’s commitments to invest $250 billion in OpenAI and $30 billion in Anthropic, demonstrating its strategic focus on AI, these investments are not fully reflected in the current stock price.

Capacity Expansion and Order Execution as Growth Foundations

Microsoft’s competitive advantage is not illusory. Its large backlog of orders provides a solid revenue base, and amid the explosive demand for AI chips this year, Microsoft plans to significantly expand its cloud computing capacity. This capacity expansion not only showcases Microsoft’s strong execution capabilities but also signals the potential for future earnings growth. In comparison, competitors face more complex capacity constraints.

Valuation Multiples Highlight Attractiveness

From a valuation perspective, Microsoft’s estimated multiple for fiscal year 2027 is only 23 times, notably lower than Amazon (24 times) and Google (25 times), both of which are also major cloud service providers. More importantly, in terms of operational visibility, remaining performance obligations (RPO), and AI monetization pathways, Microsoft performs more transparently and clearly than the other two. This means investors face less uncertainty and lower risk premiums when investing in Microsoft.

The $675 Target Price Reflects a Triple Investment Logic

Jefferies’ target price of $675 is not arbitrary but supported by three key factors: first, Microsoft’s current valuation is relatively undervalued with room for upward correction; second, capacity expansion will directly drive performance growth over the next two years; third, the path to AI commercialization and monetization is relatively clear, reducing long-term investment risks. Considering these factors, the firm believes Microsoft has the necessary conditions for medium-term upside, hence the “Buy” rating.